Annual Report
June 30, 1998
INVESCO
INDUSTRIAL
INCOME FUND
A no-load mutual fund seeking
long-term growth and income.
You should know
what INVESCO knows. (TM)
<PAGE>
Economic Overview July 1998
The first half of 1998 produced strong gains for the equity markets, as
lower interest rates, low inflation, and robust consumer confidence lifted the
markets to euphoric levels. However, much like the latter half of 1997, these
gains were produced only with increased volatility as concerns about the Asian
contagion and its potential effect on the domestic economy continued to weigh on
investors. As negative sentiment intensified, investors sought safety in
large-capitalization stocks, producing severe sector rotation and
underperformance of many small- and mid-cap stock indexes. Nevertheless,
numerous financial pundits speculate that the current economic environment
represents investment nirvana.
How long will this situation last? The key to maintaining the current
economic backdrop and equity valuations may lie in the following variables:
o Consumer Confidence: American household optimism, as measured by the
Consumer Confidence Index, is riding a 29-year high. Concomitantly,
consumer willingness to spend money increases, benefiting the economy.
o Interest Rates: Interest rates are at historic low levels. A significant
increase would slow the domestic economy, decrease corporate earnings, and
have a negative effect on the financial markets.
o Productivity: Significant gains in productivity by American workers have
contributed strongly to the lengthy bull market; as productivity improves,
earnings accelerate, supporting company stock prices. Conversely, slower
productivity could have a negative effect on corporate earnings and stock
prices.
If these three variables remain positive, the economic expansion and bull
market in the U.S. should continue. But, as with most perfect scenarios, if
conditions in the economy change and create a negative backdrop for financial
markets, then the markets are likely to experience a contraction. Either way,
investors need to remember that short-term fluctuations in the markets should
not influence long-term financial plans, and presently the underpinnings for a
strong equity market remain intact.
For fixed-income investors, the outlook for bonds and interest rates
remains positive. Inflation remains subdued and the world's largest borrower,
the U.S. government, may have a budget surplus this year -- decreasing their
need to borrow funds. In addition, given the economic and currency problems
elsewhere around the world, our fixed-income market still looks quite attractive
on a risk/reward basis, causing many international investors to favor
dollar-denominated fixed-income obligations in the U.S.
<PAGE>
INVESCO Industrial Income Fund
Average Annual Total Return as of 6/30/98 (1)
1 year 20.55%
---------------------------------------------
5 years 16.21%
---------------------------------------------
10 years 16.62%
---------------------------------------------
For the one-year period ended 6/30/98, INVESCO Industrial Income Fund
achieved a total return of 20.55%. During the same period, the S&P 500 had a
total return of 30.05%, and the Lehman Government/Corporate Bond Index had a
total return of 11.28%. (Of course, past performance is not a guarantee of
future results.)(1),(2)
INVESCO Industrial Income Fund received the prestigious four-star rating
for risk-adjusted performance by Morningstar for the three-year, 10-year, and
overall periods ended 6/30/98 among 2545, 707, and 2545 funds. For the five-year
period ended 6/30/98, the fund received a three-star rating among 1462 funds.(3)
As the line graph illustrates, for the 10-year period ended 6/30/98, the
value of a $10,000 investment in Industrial Income Fund, plus reinvested
dividends and capital gain distributions, would have risen to $46,527. The chart
and other total return figures cited reflect the fund's operating expenses, but
the indexes do not have expenses, which would, of course, have lowered their
performance. (Of course, past performance is not a guarantee of future
results.)(1),(2)
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Industrial Income Fund to the value of a
$10,000 investment in the S&P 500 Index and Lehman
Government/Corporate Bond Index, assuming in each case reinvestment of
all dividends and capital gain distributions, for the ten year period
ended 6/30/98.
Investors need to remember that this fund is designed to be an "All
Weather" fund with investments in dividend-paying stocks and fixed-income
obligations. The fund may be appropriate as a core holding for most portfolios.
Industrial Income Fund is not expected to outperform an all-equity index in a
raging bull market, but is designed to mitigate losses in a flat and declining
market. This disciplined approach to investing seeks to reduce volatility, while
offering the potential for capital appreciation.
All-Weather Industrial Income Fund*
Average Annual Total Returns 1970-1997
INVESCO Industrial Income Fund achieved almost all of the positive annual
returns and suffered less than 1/3 of the negative annual returns of the S&P
500.(1),(2)
Graph:
This bar graph compares the average annual total returns of the INVESCO
Industrial Income Fund to those of the S&P 500 Index for the 28 years
ending December 31, 1997.
*The S&P 500 average annualized total returns were 33.35% for one year, 20.23%
for five years, and 18.00% for 10 years as of 12/31/97. Past performance is not
a guarantee of future results.
<PAGE>
Equity Strategy
In the summer and fall of 1997, the Asian financial crisis spread from a
few isolated countries to the whole Asian/Pacific Rim region. This created
uncertainty in the domestic equity markets, producing the first correction in
more than seven years. In this volatile environment, we have avoided firms
dependent on Asia, while concentrating the fund's investments in companies that
exhibit:
o the ability to grow earnings
o market-leadership positions
o strong balance sheets
o positive cash flows
o strong management
Over the last 12 months, we have reduced the fund's equity position while
increasing the fund's exposure to fixed-income securities. Within the equity
portion of the portfolio, we have concentrated on retailers, tele-communication
companies, health care firms, and financials. At the same time, we decreased our
exposure to capital goods, energy, and technology companies -- except for those
firms benefiting from the year 2000 problem.
Retailers have produced significant gains for the fund in the last 12
months as they are profiting from strength in the domestic economy, increasing
real wages, and cheaper imported goods from Asia. One of our favorite
investments in this sector remains Dayton Hudson. Mostly known for their Target
stores, Dayton Hudson is experiencing accelerating revenues and earnings as
consumers increase their spending on discretionary items.
In the health care sector, investments are skewed towards large-cap
pharmaceuticals. These companies are benefiting from an improved regulatory
environment and strong new product pipelines. The Food & Drug Administration
(FDA) has dramatically cut the approval time for new drugs. This has improved
the profitability of large-cap pharmaceuticals, since new drugs sales typically
drive their revenue and earnings growth. Not only are new drugs coming to the
market sooner, but a better-educated consumer is increasing the demand for these
new products. Furthermore, as baby boomers age, their need for pharmaceutical
products should increase revenues for selected drug companies.
In the financial services sector, we have increased our investments in
insurance companies, while reducing our exposure to banks -- as valuation levels
for many banks appear excessive. Insurance companies are becoming more
aggressive in gathering assets. Through the selling of fixed and variable
annuities and other wealth-protection products, selected companies are
benefiting from the change in demographics and the growing emphasis on
retirement by baby boomers. We continue to favor insurance companies that are
well-positioned in both fixed and variable products, that are building strong
brand names, and that have effective distribution forces -- like Allmerica
Financial and Lincoln National. In addition, consolidation in the insurance
industry creates other opportunities for investors.
Fixed-Income Strategy
Over the last 12 months, we increased the fund's exposure to fixed-income
obligations. We continue to believe that fixed-income securities appear quite
attractive on a risk/reward basis, as inflation remains almost non-existent.
Through our disciplined, value-oriented bond management style, we continue to
identify corporate issues that are mispriced by the market. Presently, we feel
the best opportunities are available in the communications and energy sectors,
as well as the electric utilities industry.
<PAGE>
In the communications sector, merger and consolidation activity plus
improving fundamentals have created enormous opportunities for the patient
investor. We continue to favor investments in competitive local exchange
carriers (CLECs) and rural service and long-distance providers. One of our
favorite names is Qwest Communications International, a long-distance telephone
service provider. Qwest has been aggressive in acquiring firms and has a pending
agreement with Ameritech Corp., which would offer Ameritech's customers
long-distance telephone service through Qwest. If the deal is approved, it could
create potential opportunities for Qwest in European markets, enhancing their
profitability.
Although the gains produced in the energy sector have been minor so far, we
are excited about its long-term potential as companies are only beginning to
look at possible merger and acquisition opportunities. It appears that industry
consolidation is in its infancy stages in this sector. We expect to keep the
fund's investments skewed towards natural gas companies.
Some of the strongest gains in the fixed-income portion of the portfolio
over the last 12 months have come from our "stranded cost" theme in electric
utilities. These companies are in a state of dynamic transition as the industry
moves towards deregulation and increased competition, ultimately benefiting the
low-cost providers. But deregulation has also created a problem, because many
electric utilities built power plants on the premise of restricted competition
and regulated prices set forth by the government. State legislatures are now
addressing this issue, allowing many utilities to securitize their stranded
costs. This may permit some companies to generate substantial cash flows, which
may reduce their debt levels and possibly improve their credit ratings. We will
continue to favor investments in states that are the furthest along in
addressing the issue of stranded costs -- California, Pennsylvania, and New
York.
Looking Forward
We believe that the second half of 1998 may be a more difficult environment
for equities compared to the first half of the year. It appears that corporate
earnings may be squeezed, and dividends could play a more crucial role in
enhancing shareholders' returns. Presently the fund invests approximately 65% of
its assets in dividend-paying securities. In addition, the strong domestic
economy should help high yield securities produce strong relative returns over
the next six months. The fund will continue to search for new opportunities in
the fixed-income market.
Fund Management
Senior Vice President and Director of Investments Charles P. Mayer has been
responsible for the equity side of the portfolio since 1993. An industry veteran
with 29 years of professional experience, he earned an MBA from St. John's
University and a BA from St. Peter's College. Previously, Charlie was with
Westinghouse Pension.
Senior Vice President and Director of Fixed-Income Investments Donovan
"Jerry" Paul has served as co-portfolio manager of the fund since 1994,
concentrating on fixed-income securities. Jerry began his investment career in
1976; before joining INVESCO, he worked for Stein, Roe & Farnham Inc., as well
as Quixote Investment Management. He earned an MBA from the University of
Northern Iowa, and a BBA from the University of Iowa. He is a Chartered
Financial Analyst and Certified Public Accountant.
<PAGE>
(1)The S&P 500 is an unmanaged index considered representative of the
performance of the broad U.S. stock market, while the Lehman
Government/Corporate Bond Index is an unmanaged index indicative of the broad
fixed-income market.
(2)Total return assumes reinvestment of dividends and capital gain distributions
for the periods indicated. Past performance is not a guarantee of future
results. Investment return and principal value will fluctuate so that, when
redeemed, an investor's shares may be worth more or less than when purchased.
(3)Morningstar proprietary rankings reflect historical risk-adjusted performance
and are subject to change every month. Ratings are calculated for the fund's
three-, five-, and 10-year average annual returns (based on available track
records) in excess of 90-day Treasury bill returns. The top 10% of funds in an
investment category receive 5 stars; the next 22.5%, 4 stars; and the next 35%,
3 stars.
<PAGE>
INVESCO Industrial Income Fund, Inc.
Ten Largest Common Stock Holdings
June 30, 1998
Description Value
- --------------------------------------------------------------------------------
Kansas City Southern Industries $165,003,125
Bank of New York 133,512,500
General Electric 127,400,000
Bell Atlantic 100,375,000
US WEST 94,000,000
Merck & Co 93,625,000
Dayton Hudson 92,150,000
AlliedSignal Inc 87,418,750
International Business Machines 87,395,275
Exxon Corp 85,575,000
Composition of holdings is subject to change.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESCO Industrial Income Fund, Inc.
Statement of Investment Securities
June 30, 1998
Shares or
Principal
Description Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 74.40%
AEROSPACE & DEFENSE 1.98%
Lockheed Martin $ 300,000 $ 31,762,500
Northrop Grumman 675,000 69,609,375
-------------
101,371,875
-------------
AUTO PARTS 0.38%
Borg-Warner Automotive 400,600 19,253,837
-------------
AUTOMOBILES 1.09%
Ford Motor 750,000 44,250,000
General Motors Class H* 250,000 11,781,250
-------------
56,031,250
-------------
BANKS 5.92%
Bank of New York 2,200,000 133,512,500
Fleet Financial Group 688,000 57,448,000
Mellon Bank 1,000,000 69,625,000
NationsBank Corp 550,000 42,075,000
-------------
302,660,500
-------------
BEVERAGES 1.48%
Anheuser-Busch Cos 1,600,000 75,500,000
-------------
<PAGE>
CHEMICALS 0.96%
du Pont (E I) de Nemours 250,000 18,656,250
Olin Corp 725,000 30,223,437
-------------
48,879,687
-------------
COMMUNICATIONS -
EQUIPMENT & MANUFACTURING 0.82%
Motorola Inc 800,000 42,050,000
-------------
COMPUTER RELATED 1.71%
International Business Machines 761,200 87,395,275
-------------
ELECTRICAL EQUIPMENT 3.38%
Emerson Electric 750,000 45,281,250
General Electric 1,400,000 127,400,000
-------------
172,681,250
-------------
ELECTRONICS - SEMICONDUCTOR 1.56%
Applied Materials* 721,000 21,269,500
Texas Instruments 1,000,000 58,312,500
-------------
79,582,000
-------------
FOODS 5.52%
General Mills 900,000 61,537,500
Heinz (H J) Co 1,092,000 61,288,500
Kellogg Co 1,600,000 60,100,000
Quaker Oats 800,000 43,950,000
Ralston-Purina Group 475,000 55,485,937
-------------
282,361,937
-------------
GOLD & PRECIOUS METALS MINING 0.37%
Newmont Mining 799,050 18,877,556
HEALTH CARE DRUGS - PHARMACEUTICALS 7.94%
American Home Products 1,000,000 51,750,000
Bristol-Myers Squibb 500,000 57,468,750
Merck & Co 700,000 93,625,000
Monsanto Co 664,000 37,101,000
Novo-Nordisk A/S Sponsored
ADR Representing 1/2 B Shrs 500,000 34,406,250
SmithKline Beecham PLC Sponsored ADR
Representing 5 Ord Shrs 800,000 48,400,000
Warner-Lambert Co 1,200,000 83,250,000
-------------
406,001,000
-------------
HEALTH CARE RELATED 1.06%
Becton Dickinson 700,000 54,337,500
-------------
HOUSEHOLD PRODUCTS 0.69%
Colgate-Palmolive Co 400,000 35,200,000
-------------
INSURANCE 3.16%
Allmerica Financial 656,818 42,693,170
Chubb Corp 800,000 64,300,000
Lincoln National 600,000 54,825,000
-------------
161,818,170
-------------
<PAGE>
INVESTMENT BANK/BROKER FIRM 0.02%
Omega Worldwide* 132,625 1,002,977
-------------
LODGING - HOTELS 1.67%
Hilton Hotels 3,000,000 85,500,000
-------------
MACHINERY 0.88%
Ingersoll-Rand Co 1,025,000 45,164,063
-------------
MANUFACTURING 2.55%
AlliedSignal Inc 1,970,000 87,418,750
Textron Inc 600,000 43,012,500
-------------
130,431,250
-------------
NATURAL GAS 0.32%
K N Energy 300,000 16,256,250
-------------
OIL & GAS RELATED 7.53%
Apache Corp 900,000 28,350,000
Atlantic Richfield 750,000 58,593,750
Chevron Corp 600,000 49,837,500
Exxon Corp 1,200,000 85,575,000
Royal Dutch Petroleum New York
Registry 1.25 Gldr Shrs 1,000,000 54,812,500
Schlumberger Ltd 400,000 27,325,000
USX-Marathon Group 900,000 30,881,250
Union Pacific Resources Group 1,200,000 21,075,000
Unocal Corp 800,000 28,600,000
-------------
385,050,000
-------------
PAPER & FOREST PRODUCTS 0.83%
Champion International 500,000 24,593,750
Fort James 400,000 17,800,000
-------------
42,393,750
-------------
POLLUTION CONTROL 0.60%
Republic Services Class A* 1,280,000 30,720,000
-------------
RAILROADS 3.75%
Kansas City Southern Industries 3,325,000 165,003,125
Norfolk Southern 900,000 26,831,250
-------------
191,834,375
-------------
REAL ESTATE INVESTMENT TRUST 1.92%
Boston Properties 350,000 12,075,000
Health & Retirement Properties
Trust SBI 1,200,000 22,575,000
Health Care Property Investors 550,000 19,834,375
Healthcare Realty Trust 400,000 10,900,000
Meditrust Corp Paired Certificates 550,800 15,387,975
Omega Healthcare Investors 500,000 17,562,500
-------------
98,334,850
-------------
<PAGE>
RETAIL 5.24%
Dayton Hudson 1,900,000 92,150,000
Federated Department Stores* 500,000 26,906,250
May Department Stores 400,000 26,200,000
Penney (J C) Co 600,000 43,387,500
Tandy Corp 1,500,000 79,593,750
-------------
268,237,500
-------------
SAVINGS & LOAN 1.87%
Ahmanson (H F) & Co 600,000 42,600,000
Charter One Financial 1,573,400 53,003,913
-------------
95,603,913
-------------
SERVICES 1.58%
First Data 1,400,000 46,637,500
Service Corp International 800,000 34,300,000
-------------
80,937,500
-------------
TELECOMMUNICATIONS -
LONG DISTANCE 1.24%
AT&T Corp 600,000 34,275,000
WorldCom Inc* 600,000 29,062,500
-------------
63,337,500
-------------
TELEPHONE 5.76%
Bell Atlantic 2,200,000 100,375,000
GTE Corp 800,000 44,500,000
SBC Communications 1,400,000 56,000,000
US WEST 2,000,000 94,000,000
-------------
294,875,000
-------------
TOBACCO 0.62%
Philip Morris 800,000 31,500,000
-------------
TOTAL COMMON STOCKS
(Cost $2,388,905,769) 3,805,180,765
-------------
FIXED INCOME SECURITIES 19.51%
US Government Obligations 1.14%
US Treasury Notes
6.125%, 8/15/2007 37,000,000 38,514,705
5.500%, 5/31/2003 20,000,000 20,000,000
-------------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $58,214,980) 58,514,705
-------------
<PAGE>
US Government Agency Obligations 1.30%
Fannie Mae, Gtd Mortgage
Pass-Through Certificates
6.500%, 7/1/2008 26,946,287 27,139,219
Government National Mortgage
Association I, Pass-Through
Certificates, 7.000%, 12/15/2023 38,743,101 39,448,223
-------------
TOTAL US GOVERNMENT
AGENCY OBLIGATIONS (Cost $65,766,626) 66,587,442
-------------
Asset-Backed Securities 0.10%
CABLE 0.10%
Cox Enterprises, Pass-Through
Asset Trust, 1997-1^
6.250%, 8/26/1999 (Cost $5,027,524) 5,000,000 4,993,555
-------------
Corporate Bonds 16.97%
AUTOMOBILES 0.32%
Auburn Hills Trust, Gtd
Exchangeable Deb Certificate
12.000%, 5/1/2020 10,000,000 16,449,869
-------------
BROADCASTING 0.48%
American Radio Systems, Sr Sub
Notes, 9.000%, 2/1/2006 3,000,000 3,217,500
Clear Channel Communications
Notes, 6.625%, 6/15/2008 10,150,000 10,068,849
EchoStar Communications, Gtd Sr
Secured Discount Step-Up Notes
Zero Coupon^^, 6/1/2004 5,000,000 4,875,000
JCAC Inc, Sr Sub Notes
10.125%, 6/15/2006 6,000,000 6,562,500
-------------
24,723,849
-------------
BUILDING MATERIALS 0.70%
Congoleum Corp, Sr Notes
9.000%, 2/1/2001 12,040,000 12,341,000
USG Corp, Sr Notes
8.500%, 8/1/2005 21,093,000 23,451,196
-------------
35,792,196
-------------
CABLE 0.22%
CF CABLE TV, Sr Secured 2nd
Priority Notes, 11.625%
2/15/2005 2,750,000 3,100,625
Continental Cablevision, Sr Deb
9.500%, 8/1/2013 6,925,000 8,246,505
-------------
11,347,130
-------------
CHEMICALS 0.04%
Terra Industries, Sr Notes, Series B
10.500%, 6/15/2005 2,000,000 2,155,000
-------------
<PAGE>
COMMUNICATIONS -
EQUIPMENT & MANUFACTURING 0.33%
RCN Corp, Sr Discount Step-Up Notes
Zero Coupon^^, 7/1/2008 6,350,000 3,770,312
Series B, Zero Coupon^^ 2/15/2008 21,600,000 12,960,000
-------------
16,730,312
-------------
ELECTRIC UTILITIES 4.30%
Boston Edison, Deb
7.800%, 5/15/2010 6,700,000 7,389,644
7.800%, 3/15/2023 4,560,000 4,833,513
Carolina Power & Light
1st Mortgage
8.625%, 9/15/2021 6,650,000 8,419,870
8.200%, 7/1/2022 2,000,000 2,167,402
6.875%, 8/15/2023 8,250,000 8,372,866
Cleveland Electric Illuminating
1st Mortgage
8.375%, 8/1/2012 4,855,000 4,998,217
Series B, 9.500%, 5/15/2005 12,000,000 13,200,000
Sr Secured Notes, Series D
7.430%, 11/1/2009 7,500,000 7,844,579
Consumers Energy, 1st & Refunding
Mortgage, 7.375%, 9/15/2023 10,700,000 11,208,699
DQU-II Funding, Collateral Lease
8.700%, 6/1/2016 17,500,000 19,592,649
Detroit Edison
1st Mortgage Medium-Term Notes
Series C, 8.240%, 1/13/2023 5,600,000 6,228,286
Secured Medium-Term Notes
Series C, 8.300%, 1/13/2023 5,000,000 5,554,974
Series D, 8.310%, 8/1/2022 3,000,000 3,332,247
Series 92-D, 8.300%, 8/1/2022 11,000,000 12,145,099
El Paso Electric, 1st Mortgage
Series C, 8.250%, 2/1/2003 3,000,000 3,201,000
Jersey Central Power & Light
1st Mortgage
7.500%, 5/1/2023 7,160,000 7,447,208
6.750%, 11/1/2025 12,750,000 12,638,410
Massachusetts Electric, Medium-
Term Notes, Series R
8.550%, 2/7/2022 5,000,000 5,556,715
Metropolitan Edison, Secured
Medium-Term Notes, Series B
8.150%, 1/30/2023 19,950,000 21,799,981
New York State Electric & Gas
1st Mortgage, 8.300%
12/15/2022 8,250,000 8,922,110
Pacific Gas & Electric
1st & Refunding Mortgage
Series 92B, 8.375%, 5/1/2025 3,524,000 3,841,537
Series 93D, 7.250%, 8/1/2026 3,500,000 3,664,713
Pennsylvania Power, 1st Mortgage
8.500%, 7/15/2022 2,000,000 2,195,380
Pennsylvania Power & Light
1st Mortgage
8.500%, 5/1/2022 6,600,000 7,413,582
7.875%, 2/1/2023 3,750,000 4,077,979
<PAGE>
Philadelphia Electric
1st & Refunding Mortgage
7.750%, 3/1/2023 536,000 562,893
7.250%, 11/1/2024 7,412,000 7,666,602
Potomac Electric Power, 1st
Mortgage, 6.250%, 10/15/2007 10,000,000 10,260,519
South Carolina Electric & Gas, 1st
Mortgage, 8.875%, 8/15/2021 2,000,000 2,205,910
Western Massachusetts Electric
1st Mortgage, Series V
7.750%, 12/1/2002 3,250,000 3,322,199
-------------
220,064,783
-------------
ELECTRICAL EQUIPMENT 0.09%
Alpine Group, Sr Secured Notes
Series B, 12.250%, 7/15/2003 4,249,000 4,610,165
-------------
ENTERTAINMENT 0.48%
Paramount Communications, Sr Deb
8.250%, 8/1/2022 5,800,000 6,084,339
Time Warner, Deb
6.850%, 1/15/2026 7,500,000 7,761,187
Viacom International, Sub Deb
Series A, 7.000%, 7/1/2003 7,500,000 7,427,527
Series B, 7.000%, 7/1/2003 3,140,000 3,109,658
-------------
24,382,711
-------------
GAMING 0.15%
Station Casinos, Sr Sub Notes
9.625%, 6/1/2003 7,500,000 7,762,500
-------------
HEALTH CARE DRUGS - PHARMACEUTICALS 0.22%
Home Products International, Sr Sub
Notes^, 9.625%, 5/15/2008 3,500,000 3,482,500
McKesson Corp, Sub Deb
4.500%, 3/1/2004 8,507,000 7,936,384
-------------
11,418,884
------------
HEALTH CARE RELATED 0.19%
FHP International, Sr Notes
7.000%, 9/15/2003 6,450,000 6,651,995
US Surgical, Sr Notes
7.250%, 3/15/2008 3,000,000 3,151,149
-------------
9,803,144
-------------
INSURANCE 0.99%
Equitable Cos, Sr Notes
9.000%, 12/15/2004 40,470,000 46,433,613
Veritas Holdings GmbH, Sr Notes
9.625%, 12/15/2003 4,068,000 4,281,570
-------------
50,715,183
-------------
<PAGE>
INVESTMENT BANK/BROKER FIRM 0.20%
Donaldson Lufkin & Jenrette
Medium-Term Notes
5.625%, 2/15/2016 6,000,000 5,985,954
Lehman Brothers Holdings, Sr Notes
8.800%, 3/1/2015 3,475,000 4,192,264
-------------
10,178,218
-------------
IRON & STEEL 0.16%
National Steel, 1st Mortgage
8.375%, 8/1/2006 8,000,000 8,000,000
-------------
LODGING - HOTELS 0.26%
Hilton Hotels, Sr Notes
7.200%, 12/15/2009 13,220,000 13,029,815
-------------
MACHINERY 0.14%
AGCO Corp, Sr Sub Notes
8.500%, 3/15/2006 7,100,000 7,313,000
-------------
METALS MINING 0.36%
Glencore Nickel Pty Ltd, Sr Secured
9.000%, 12/1/2014 11,000,000 10,615,000
Haynes International, Sr Notes
11.625%, 9/1/2004 7,075,000 7,994,750
-------------
18,609,750
-------------
NATURAL GAS 0.13%
NorAm Energy, Conv Sub Deb
6.000%, 3/15/2012 7,064,000 6,675,480
-------------
OIL & GAS RELATED 2.05%
Atlantic Richfield, Deb
10.875%, 7/15/2005 3,030,000 3,851,705
9.125%, 8/1/2031 2,757,000 3,747,455
9.000%, 4/1/2021 18,910,000 24,651,396
9.000%, 5/1/2031 503,000 674,666
8.750%, 3/1/2032 2,326,000 3,045,585
Belco Oil & Gas, Sr Sub Notes
Series B, 8.875%, 9/15/2007 7,000,000 6,772,500
Canadian Forest Oil Ltd, Gtd Sr
Sub Notes, 8.750%, 9/15/2007 6,910,000 6,776,691
Cliffs Drilling, Gtd Sr Notes
Series B, 10.250%, 5/15/2003 5,000,000 5,275,000
Series D, 10.250%, 5/15/2003 4,060,000 4,283,300
Coda Energy, Gtd Sr Sub Notes
Series B, 10.500%, 4/1/2006 8,000,000 8,400,000
Cross Timbers Oil, Sr Sub Notes
Series B, 9.250%, 4/1/2007 2,800,000 2,873,500
Energy Corp of America, Sr Sub
Notes, Series A 9.500% 5/15/2007 9,750,000 9,555,000
Gulf Canada Resources Ltd
Sr Notes
8.350%, 8/1/2006 8,750,000 9,581,004
8.250%, 3/15/2017 5,000,000 5,509,650
Northern Offshore ASA, Sr Notes^
10.000%, 5/15/2005 5,000,000 4,775,000
<PAGE>
SEACOR SMIT, Sr Notes
7.200%, 9/15/2009 5,000,000 5,125,800
-------------
104,898,252
-------------
PAPER & FOREST PRODUCTS 0.34%
QUNO Corp, Sr Notes
9.125%, 5/15/2005 13,050,000 13,963,500
Tembec Finance, Gtd Sr Notes
9.875%, 9/30/2005 3,000,000 3,172,500
-------------
17,136,000
-------------
PUBLISHING 0.26%
Affiliated Newspaper Investments
Sr Discount Step-Up Notes
Zero Coupon^^, 7/1/2006 8,000,000 7,940,000
Quebecor Printing Capital, Gtd Deb
6.500%, 8/1/2027 5,000,000 5,089,774
-------------
13,029,774
-------------
RETAIL 0.08%
Federated Department Stores, Sr
Deb, 6.790%, 7/15/2027 4,000,000 4,125,156
-------------
SAVINGS & LOAN 0.40%
Sovereign Bancorp, Medium-Term
Notes, 8.000%, 3/15/2003 6,500,000 6,821,490
Western Financial Savings Bank
Sub Capital Deb, 8.500% 7/1/2003 14,000,000 13,717,857
-------------
20,539,347
-------------
SERVICES 0.10%
United Rentals, Sr Sub Notes^
9.500%, 6/1/2008 5,000,000 5,200,000
TELECOMMUNICATIONS -
CELLULAR & WIRELESS 1.26%
360 Communications
Notes, 6.650%, 1/15/2008 10,000,000 10,136,130
Sr Notes, 7.600%, 4/1/2009 13,500,000 14,649,686
Centennial Cellular, Sr Notes
8.875%, 11/1/2001 4,972,000 5,164,665
Esat Holdings Ltd, Sr Deferred
Coupon Step-Up Notes, Series B
Zero Coupon^^, 2/1/2007 7,850,000 5,769,750
NEXTEL Communications, Sr
Discount Step-Up Notes
Zero Coupon^^, 8/15/2004 11,500,000 11,212,500
Teligent Inc, Sr Discount
Step-Up Notes^
Zero Coupon^^, 3/1/2008 14,750,000 8,130,937
Triton PCS, Sr Sub Discount
Step-Up Notes^
Zero Coupon^^, 5/1/2008 16,300,000 9,168,750
-------------
64,232,418
-------------
<PAGE>
TELECOMMUNICATIONS -
LONG DISTANCE 1.85%
GST Telecommunications/GST
Network Funding, Sr Discount
Step-Up Notes^, Zero Coupon^^
5/1/2008 5,000,000 3,000,000
Level 3 Communications, Sr Notes^
9.125%, 5/1/2008 17,000,000 16,553,750
McLeodUSA Inc
Sr Discount Step-Up Notes
Zero Coupon^^, 3/1/2007 3,600,000 2,682,000
Sr Notes, 9.250%, 7/15/2007 6,250,000 6,484,375
NEXTLINK Communications
Sr Discount Step-Up Notes^
Zero Coupon^^, 4/15/2008 5,500,000 3,361,875
Sr Notes, 9.625%, 10/1/2007 5,425,000 5,560,625
NEXTLINK Communications LLC/
NEXTLINK Capital, Sr Notes
12.500%, 4/15/2006 2,750,000 3,121,250
Qwest Communications International,
Sr Discount Step-Up
Notes^, Zero Coupon^^, 2/1/2008 5,000,000 3,600,000
RSL Communications Ltd
Sr Discount Step-Up Notes^
Zero Coupon^^, 3/1/2008 12,500,000 7,437,500
Sr Notes^, 9.125%, 3/1/2008 15,000,000 14,550,000
WorldCom Inc, Sr Notes
7.750%, 4/1/2027 24,900,000 28,140,309
-------------
94,491,684
-------------
TELEPHONE 0.79%
Centel Capital, Deb
9.000%, 10/15/2019 5,000,000 6,346,970
Frontier Corp, Notes
7.250%, 5/15/2004 5,150,000 5,429,366
Intermedia Communications
Sr Notes^, 8.600%, 6/1/2008 3,000,000 3,037,500
Sr Notes, 8.500%, 1/15/2008 10,000,000 10,000,000
MetroNet Communications
Sr Discount Step-Up Notes
Zero Coupon^^, 11/1/2007 7,000,000 4,593,750
Sr Discount Step-Up Notes^
Zero Coupon^^, 6/15/2008 9,250,000 5,593,087
Sr Notes, 12.000%, 8/15/2007 4,800,000 5,412,000
-------------
40,412,673
-------------
UTILITIES - GAS 0.08%
Camuzzi Gas Pampeana SA/
Camuzzi Gas del Sur, Medium-
Term Notes^, 9.250%, 12/15/2001 4,000,000 4,000,000
-------------
TOTAL CORPORATE BONDS
(COST $859,980,638) 867,827,293
-------------
<PAGE>
TOTAL FIXED INCOME SECURITIES
(Cost $988,989,768) 997,922,995
-------------
SHORT-TERM INVESTMENTS -
COMMERCIAL PAPER 6.09%
CONSUMER FINANCE 0.44%
American Express Credit
5.570%, 7/1/1998 22,690,000 22,690,000
-------------
ELECTRICAL EQUIPMENT 0.78%
General Electric, 5.620%, 7/6/1998 40,000,000 40,000,000
-------------
FINANCIAL 0.55%
General Electric Capital
6.150%, 7/1/1998 28,000,000 28,000,000
-------------
INSURANCE 0.85%
CIGNA Corp, 5.660%, 7/10/1998 43,447,000 43,447,000
-------------
OIL & GAS RELATED 1.73%
Chevron USA
5.600%, 7/8/1998 48,993,000 48,993,000
5.450%, 7/1/1998 39,586,000 39,586,000
-------------
88,579,000
-------------
RETAIL 1.74%
Sears Roebuck Acceptance
5.700%, 7/9/1998 39,093,000 39,093,000
5.450%, 7/2/1998 49,916,000 49,916,000
-------------
89,009,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $311,725,000) 311,725,000
-------------
TOTAL INVESTMENT
SECURITIES AT VALUE 100.00%
(Cost $3,689,620,537)
(Cost for Income Tax Purposes
$3,699,141,109) $5,114,828,760
==============
</TABLE>
* Security is non-income producing.
^ Securities acquired pursuant to Rule 144A. The Fund deems such securities
to be "liquid" because an institutional market exists.
^^ Step-up bonds are obligations which increase the interest payment rate at a
specified point in time. Rate shown reflects current rate which may step up
at a future date.
See Notes to Financial Statements
<PAGE>
INVESCO Industrial Income Fund, Inc.
Statement of Assets and Liabilities
June 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment Securities at Value
(Cost $3,689,620,537) $ 5,114,828,760
Cash 2,595,018
Receivables:
Investment Securities Sold 10,856,195
Fund Shares Sold 6,030,596
Dividends and Interest 20,334,842
Prepaid Expenses 288,501
--------------
TOTAL ASSETS 5,154,933,912
--------------
LIABILITIES
Payables:
Distributions to Shareholders 2,176,344
Investment Securities Purchased 62,314,845
Fund Shares Repurchased 8,160,521
Accrued Distribution Expenses 1,038,123
Accrued Expenses and Other Payables 509,453
--------------
TOTAL LIABILITIES 74,199,286
--------------
Net Assets at Value $5,080,734,626
==============
NET ASSETS
Paid-in Capital* $3,261,876,559
Accumulated Undistributed Net
Investment Income 1,232,549
Accumulated Undistributed Net Realized Gain
on Investment Securities and Foreign
Currency Transactions 392,417,295
Net Appreciation of Investment Securities and
Foreign Currency Transactions 1,425,208,223
--------------
Net Assets at Value $5,080,734,626
==============
Net Asset Value, Offering and Redemption
Price per Share $16.18
=======
</TABLE>
* The Fund has one billion authorized shares of common stock, par value of
$1.00 per share, of which 313,928,706 were outstanding at June 30, 1998.
See Notes to Financial Statements
<PAGE>
INVESCO Industrial Income Fund, Inc.
Statement of Operations
Year Ended June 30, 1998
<TABLE>
<CAPTION>
INVESTMENT INCOME
INCOME
<S> <C>
Dividends $ 74,376,469
Interest 85,307,820
Foreign Taxes Withheld (412,846)
-------------
TOTAL INCOME 159,271,443
-------------
EXPENSES
Investment Advisory Fees 23,205,917
Distribution Expenses 12,301,096
Transfer Agent Fees 6,122,313
Administrative Fees 748,034
Custodian Fees and Expenses 587,418
Directors' Fees and Expenses 275,362
Professional Fees and Expenses 155,252
Registration Fees and Expenses 81,025
Reports to Shareholders 576,551
Other Expenses 246,709
-------------
TOTAL EXPENSES 44,299,677
Fees and Expenses Absorbed
by Investment Adviser (10,930)
Fees and Expenses Paid Indirectly (440,841)
-------------
NET EXPENSES 43,847,906
-------------
NET INVESTMENT INCOME 115,423,537
-------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 563,837,730
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 232,218,236
-------------
NET GAIN ON INVESTMENT SECURITIES 796,055,966
-------------
Net Increase in Net Assets from Operations $ 911,479,503
=============
</TABLE>
See Notes to Financial Statements
<PAGE>
INVESCO Industrial Income Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------
1998 1997
OPERATIONS
<S> <C> <C>
Net Investment Income $ 115,423,537 $ 108,311,903
Net Realized Gain on
Investment Securities and
Foreign Currency Transactions 563,837,730 372,025,901
Change in Net Appreciation
of Investment Securities and
Foreign Currency Transactions 232,218,236 550,539,412
---------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 911,479,503 1,030,877,216
---------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (115,239,239) (108,045,224)
In Excess of Net Investment Income (34,577) 0
Net Realized Gain on Investment
Securities (487,553,284) (283,864,499)
---------------------------------------
TOTAL DISTRIBUTIONS (602,827,100) (391,909,723)
---------------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 796,227,427 688,098,414
Reinvestment of Distributions 566,171,643 369,552,898
---------------------------------------
1,362,399,070 1,057,651,312
Amounts Paid for Repurchases
of Shares (1,164,991,454) (1,292,480,001)
---------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM FUND SHARE TRANSACTIONS 197,407,616 (234,828,689)
---------------------------------------
Total Increase in Net Assets 506,060,019 404,138,804
NET ASSETS
Beginning of Period 4,574,674,607 4,170,535,803
---------------------------------------
End of Period (Including
Accumulated Undistributed Net
Investment Income (Distributions
in Excess) of $1,232,549 and
($184,298) respectively) $ 5,080,734,626 $ 4,574,674,607
=======================================
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 49,736,211 49,408,506
Shares Issued from Reinvestment
of Distributions 38,238,701 27,312,058
---------------------------------------
87,974,912 76,720,564
Shares Repurchased (72,818,140) (93,580,782)
---------------------------------------
Net Increase (Decrease) in
Fund Shares $ 15,156,772 $ (16,860,218)
=======================================
</TABLE>
See Notes to Financial Statements
<PAGE>
INVESCO Industrial Income Fund, Inc.
Notes to Financial Statements
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Industrial
Income Fund, Inc. (the "Fund") is incorporated in Maryland. The Fund is an
equity income fund that seeks the best possible current income. The Fund is
registered under the Investment Company Act of 1940 (the "Act") as a
diversified, open-end management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales
price in the market where such securities are primarily traded. If last
sales prices are not available, securities are valued at the highest
closing bid price obtained from one or more dealers making a market for
such securities or by a pricing service approved by the Fund's board of
directors.
Debt securities are valued at evaluated bid prices as determined by a
pricing service approved by the Fund's board of directors. If evaluated bid
prices are not available, debt securities are valued by averaging the bid
prices obtained from one or more dealers making a market for such
securities.
Foreign securities are valued at the closing price on the principal
stock exchange on which they are traded. In the event that closing prices
are not available for foreign securities, prices will be obtained from the
principal stock exchange at or prior to the close of the New York Stock
Exchange. Foreign currency exchange rates are determined daily prior to the
close of the New York Stock Exchange.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
under procedures established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates
as quoted by one or more banks or dealers on the date of valuation. The
cost of securities is translated into U.S. dollars at the rates of exchange
prevailing when such securities are acquired. Income and expenses are
translated into U.S. dollars at the rates of exchange prevailing when
accrued.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex dividend date. Dividends-in-kind are recognized as income on the ex
dividend date, at the current market value of the underlying security.
Certain dividends from foreign securities will be recorded as soon as the
Fund is informed of the dividend if such information is obtained subsequent
to the ex dividend date. Interest income, which may be comprised of stated
coupon rate, market discount, original issue discount and amortized
premium, is recorded on the accrual basis. Discounts and premiums on debt
securities purchased are amortized over the life of the respective security
as adjustments to interest income. Cost is determined on the specific
identification basis.
<PAGE>
The Fund may have elements of risk due to investments in foreign
issuers located in a specific country. Such foreign investments may subject
the Fund to additional risks resulting from future political or economic
conditions and/or possible impositions of adverse foreign governmental laws
or currency exchange restrictions. Net realized and unrealized gain or loss
from investment securities includes fluctuations from currency exchange
rates and fluctuations in market value.
The Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in
foreign exchange rates. The Fund does not hold short-term forward foreign
currency contracts for trading purposes. The Fund may hold foreign currency
in anticipation of settling foreign security transactions and not for
investment purposes.
Investments in securities of governmental agencies may only be
guaranteed by the respective agency's limited authority to borrow from the
U.S. Government and may not be guaranteed by the full faith and credit of
the U.S. Government.
C. FEDERAL AND STATE TAXES - The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make
sufficient distributions of net investment income and net realized capital
gains, if any, to relieve it from all federal and state income taxes and
federal excise taxes.
To the extent future capital gains are offset by capital loss
carryovers, such gains will not be distributed to shareholders.
Dividends paid by the Fund from net investment income and
distributions of net realized short-term capital gains are, for federal
income tax purposes, taxable as ordinary income to shareholders. Of the
ordinary income distributions declared for the year ended June 30, 1998,
27.07% qualified for the dividends received deduction available to the
Fund's corporate shareholders.
Investment income received from foreign sources may be subject to
foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
to shareholders are recorded by the Fund on the ex dividend/distribution
date. The Fund distributes net realized capital gains, if any, to its
shareholders at least annually, if not offset by capital loss carryovers.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for mortgage-backed securities, market discounts,
amortized premiums, foreign currency transactions, nontaxable dividends,
net operating losses and expired capital loss carryforwards. For the year
ended June 30, 1998, the Fund reclassified $1,267,126 from accumulated
undistributed net realized gain on investment securities to accumulated
undistributed net investment income. Net investment income, net realized
gains and net assets were not affected.
E. EXPENSES - Under an agreement between the Fund and the Fund's Custodian,
agreed upon Custodian Fees and Expenses are reduced by credits granted by
the Custodian from any temporarily uninvested cash. Similarly, Custodian
Fees and Expenses, Distribution Expenses and Transfer Agent Fees are
reduced by credits earned by the Fund from security brokerage transactions
under certain broker/service arrangements with third parties. Such credits
are included in Fees and Expenses Paid Indirectly in the Statement of
Operations.
<PAGE>
For the year ended June 30, 1998, Fees and Expenses Paid Indirectly
consisted of $439,670 included in Custodian Fees and Expenses, $523
included in Distribution expenses and $648 included in Transfer Agent Fees.
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
("IFG") serves as the Fund's investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly.
The fee is based on the annual rate of the Fund's average net assets as
follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
$700
$0 to $350 to Million $2 Billion $4 Billion $5 Billion Over
$350 $700 to $2 to $4 to $5 to $6 $6
Million Million Billion Billion Billion Billion Billion
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0.60% 0.55% 0.50% 0.45% 0.40% 0.375%* 0.35%*
* Effective May 15, 1997, IFG voluntarily agreed to waive the portion of its fee
which exceeds 0.40% of average net assets in excess of $5 billion. Such waiver
may be discontinued in the future.
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of the
Fund were made by ITC. Fees for such sub-advisory services were paid by IFG.
Effective February 4, 1998, such responsibilities were transfered to IFG.
In accordance with an Administrative Agreement, the Fund pays IFG an annual
fee of $10,000, plus an additional amount computed at an annual rate of 0.015%
of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG receives a transfer agent fee at an annual rate of $20.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of annual average net assets. For the year
ended June 30, 1998, the Fund paid the Distributor $12,162,095 under the plan of
distribution. Effective September 29, 1997, INVESCO Distributors, Inc. ("IDI"),
a wholly owned subsidiary of IFG, replaced IFG as Distributor.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended June
30, 1998, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were $2,589,574,237 and $2,739,698,725, respectively.
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities were $87,708,443 and $263,831,583, respectively.
NOTE 4 - APPRECIATION AND DEPRECIATION. At June 30, 1998, the gross appreciation
of securities in which there was an excess of value over tax cost amounted to
$1,471,865,171 and the gross depreciation of securities in which there was an
excess of tax cost over value amounted to $56,177,520, resulting in net
appreciation of $1,415,687,651.
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IDI.
<PAGE>
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan are based on an annual rate of 40% of the retainer fee at the time of
retirement. As of July 1, 1998, benefits will be based on an annual rate of 50%
of the sum of the retainer fee at the time of retirement plus the annual meeting
fee.
Pension expenses for the year ended June 30, 1998, included in Directors'
Fees and Expenses in the Statement of Operations were $81,075. Unfunded accrued
pension costs of $211,800 and pension liability of $477,174 are included in
Prepaid Expenses and Accrued Expenses, respectively, in the Statement of Assets
and Liabilities.
NOTE 6 - LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 5% of the Net Assets at Value of the Fund. The Fund
agrees to pay annual fees and interest on the unpaid principal balance based
on prevailing market rates as defined in the agreement. At June 30, 1998, there
were no such borrowings.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
INVESCO Industrial Income Fund, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
Year Ended June 30
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $15.31 $13.21 $11.92 $11.32 $11.53
------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.38 0.35 0.41 0.42 0.36
Net Gain on Securities
(Both Realized and Unrealized) 2.54 3.05 1.53 1.14 0.02
------------------------------------------------------------------------------
Total from Investment Operations 2.92 3.40 1.94 1.56 0.38
------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.38 0.35 0.41 0.42 0.36
In Excess of Net Investment
Income 0.00 0.00 0.00 0.00 0.11
Distributions from Capital Gains 1.67 0.95 0.24 0.54 0.12
------------------------------------------------------------------------------
Total Distributions 2.05 1.30 0.65 0.96 0.59
------------------------------------------------------------------------------
Net Asset Value -
End of Period $16.18 $15.31 $13.21 $11.92 $11.32
==============================================================================
TOTAL RETURN 20.55% 27.33% 16.54% 14.79% 3.24%
RATIOS
Net Assets - End of Period
($000 Omitted) $5,080,735 $4,574,675 $4,170,536 $4,009,609 $3,913,322
Ratio of Expenses to
Average Net Assets# 0.90%@ 0.95%@ 0.93%@ 0.94% 0.92%
Ratio of Net Investment Income
to Average Net Assets# 2.35% 2.54% 3.17% 3.61% 3.11%
Portfolio Turnover Rate 58% 47% 63% 54% 56%
+ Distributions in excess of net investment income for the year ended June
30, 1998 aggregated less than $0.01 on a per share basis.
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended June 30, 1998, 1997, 1996, 1995 and 1994. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would
have been 0.90%, 0.98%, 0.96%, 0.97% and 0.95%, respectively, and ratio of
net investment income to average net assets would have been 2.35%, 2.51%,
3.14%, 3.58%, and 3.08%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Industrial Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO Industrial Income Fund,
Inc. (the "Fund") at June 30, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
July 31, 1998
<PAGE>
INVESCO FUNDS
INVESCO Distributors, Inc.,(SM)
Distributor
Post Office Box 173706
Denver, CO 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
This information must be
preceded or accompanied
by a current prospectus.
</TABLE>
