ANNUAL REPORT
May 31, 1996
INVESCO
EMERGING
GROWTH
FUND
A Smart Choice
For Maximum
Growth Potential
INVESCO FUNDS
<PAGE>
Graph: Gross Domestic Product
Quarterly Growth Rate (Annualized)
This bar graph illustrates the annualized quarterly growth rate for the
Gross Domestic Product, for the period from the first quarter of 1992
through the second quarter of 1996.
Economic Overview June 1996
The U.S. economy is sending mixed signals. In recent months, inflation
accelerated modestly and the U.S. trade deficit remained high. On the positive
side, recent figures for factory orders, inventories, and consumer confidence
were encouraging. Gains have also been seen for employment and personal income.
Overall, this mix of good and bad news has brightened the outlook for
continued rises in Gross Domestic Product. First quarter GDP growth was
estimated at an annualized 2.2%, and second quarter should come in stronger.
(See chart above.) There is the possibility that the Fed will tighten credit by
raising short-term interest rates, in the event the economy appears to be
overheating.
Taking all of the above and additional factors into account, the INVESCO
forecast remains consistent with our message for the past several months: The
soft landing for the economy appears intact.
This may well mean moderate inflation and long-term gains for stocks and
bonds, albeit with short-term volatility. Political complications, the on-going
budget conflict, and major corporate earnings disappointments would, however,
put strain on the bull market's legs.
While the stock market was extremely volatile during the first five months
of 1996, a number of industry sectors performed strongly. Of particular note
were energy, consumer cyclicals (including the previously weak retail sector),
and basic materials. Results for technology and transportation companies were
mixed, while health-care stocks generally underperformed.
Emerging Growth Fund
Average Annualized Total Return
as of 5/31/96(1)
1 year 55.78%
-----------------------------------
Since inception (12/91) 22.45%
-----------------------------------
For the six months ended 5/31/96, INVESCO Emerging Growth Fund achieved a
total return of 29.75%. During the same period, the S&P 500 had a total return
of 11.71%, and the Russell 2000, 18.14%. The fund also strongly outperformed the
indexes over the one-year period, achieving a total return of 55.78%, compared
to 28.38% for the S&P 500 and 35.95% for the Russell 2000. (Of course, past
performance is not a guarantee of future results.)(1,2)
<PAGE>
Independent fund analyst Morningstar tracks 401 small company funds; they
awarded Emerging Growth Fund an average of 5 stars for the combined periods
ended 5/31/96. For the three-year period, the fund earned 5 stars among 187
funds.(3)
The line graph below illustrates the value of a $10,000 investment in
INVESCO Emerging Growth Fund, plus reinvested dividends and capital gain
distributions, from inception through 5/31/96. 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.(1,2)
Graph: Total Return Performance(1,2)
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Emerging Growth Fund to the value of a $10,000
investment in the S&P 500 and Russell 2000 Indexes, assuming in each case
reinvestment of all dividends and capital gain distributions, for the
period from inception (12/91) through 5/31/96.
Strategic Summary
The past 12 months have seen a cyclical market shift. Last year equity
investors favored large-capitalization companies; for all of 1995, small-cap
stocks underperformed the broad market indexes. In 1996, however, expectation of
a continued slow economy has made the earnings growth rates of smaller-cap firms
more attractive on a relative basis. Advancing 14.96% year-to-date as of
5/31/96, the Russell 2000 index of smaller-cap stocks has strongly outperformed
the S&P 500's total return of 9.60%.(2)
Your fund has obviously benefited from this cyclical shift. The research
and investment decision-making process for Emerging Growth Fund focuses on
companies which boast earnings growth rates superior to the broad market. In
general, we seek to achieve these superior returns from companies whose earnings
are driven by strong revenue growth and margin trends, relatively consistent
operating results, and management teams with proven operating expertise. It is
the fund's practice to remain fully invested at all times.
The fund typically closes positions in companies which experience a
fundamental change in earnings outlook. For example, in December we sold our
shares of Metrocall Inc, a paging service that showed signs of earnings
deceleration.
Another reason we might sell a stock relates to our investment discipline.
When we add a new holding to the portfolio, we also set a target price, and sell
(assuming there are no overriding factors) when that target is reached. This was
the case with Pyxis Corp, for example.
For much of the past 12 months, the fund has overweighted the technology,
health-care, retail/consumer, and telecommunications industries. While each of
these four groups has had their problems, extremely selective stock picking led
to positive results.
<PAGE>
Technology has been a very rewarding area for Emerging Growth Fund. This
sector has been unusually volatile, especially during the autumn of 1995.
Negative earnings reports, order slowdowns, and other factors caused market
turbulence for semiconductor and computer hardware companies in particular.
However, by focusing on software makers, CD-ROM games manufacturers, and
other niches, we have justified our 30%-plus weighting in this sector. HBO & Co
and Workgroup Technology are two names which are new to the portfolio since
5/31/95.
We also like the prospects for several call processing equipment suppliers
and service providers. New holdings in this area include Aspect
Telecommunications and APAC TeleServices.
Compared to our semiannual report of 11/30/95, you will notice a lessened
emphasis on health care related companies. This sector contributed strongly to
the fund's positive performance in the past year. In the past six months,
though, we have reduced the portfolio's exposure to hospitals; in our opinion,
their past earnings growth rates will be difficult to sustain in the immediate
future, making their stock prices vulnerable.
Graph: Fund Diversification by Value
This bar graph reflects the allocation of the Emerging Growth
Fund's portfolio by value of net assets in Basic Materials,
Capital Goods & Construction, Consumer Cyclical, Consumer
Staples, Energy, Finance, Technology, Transportation &
Services, Utilities, and Net Cash & Equivalents for the
periods ending 11/95 and 5/96.
On the other hand, we have maintained positions in companies which we
believe will continue to meet our criteria for above-average earnings growth.
Among these are Arris Pharmaceutical, a developer of novel treatments for
asthma; Lincare Holdings, a fast-growing provider of oxygen therapy in the home;
and PAREXEL International and ClinTrials Research, two leading firms in clinical
trials of new pharmaceuticals.
As noted above, many consumer cyclical stocks underperformed last year.
During the autumn of 1995, we cut back or eliminated many positions in this
sector. As the stocks of some retailers, in particular, have rebounded, we have
taken positions in firms with well-defined niches. New positions include
Loehmann's Inc, a popular national discount clothing chain; and Talbots Inc,
which focuses on clothing for upscale conservative women.
<PAGE>
Fund Management
INVESCO Emerging Growth Fund is managed by INVESCO Vice President John R.
Schroer. He received his MBA and BA from the University of Wisconsin-Madison. A
Chartered Financial Analyst, John joined INVESCO in 1992 and took over
management of the fund in 1995. He had earlier served with Trust Company of the
West. He is also co-manager of INVESCO Strategic Health Sciences Portfolio.
(1) 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.
(2) The S&P 500 is an unmanaged index considered representative of
the performance of the broad U.S. stock market. The Russell
2000 is an unmanaged index indicative of smaller-
capitalization stock prices.
(3) Morningstar's proprietary ratings reflect historical
risk-adjusted performance as of 5/31/96 and are subject to
change every month. Ratings are calculated from the fund's 3-,
5-, and 10-year average annual total 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% receive 4 stars.
<PAGE>
INVESCO Emerging Opportunity Funds, Inc. --
Emerging Growth Fund
Ten Largest Common Stock Holdings
May 31, 1996
Description Value
- ------------------------------------------------------------------------
HBO & Co $10,082,408
FORE Systems 9,023,400
PAREXEL International 8,831,900
CBT Group PLC Sponsored ADR 8,638,600
HA-LO Industries 8,460,000
Omnicare Inc 7,821,725
Ascend Communications 7,296,062
Quintiles Transnational 7,090,800
Oxford Health Plans 6,945,750
Cognos Inc 6,696,000
Composition of holdings is subject to change.
<PAGE>
INVESCO Emerging Opportunity Funds, Inc. --
Emerging Growth Fund
Statement of Investment Securities
May 31, 1996
Shares or
Principal
Description Amount Value
- ------------------------------------------------------------------------------
COMMON STOCKS 97.16%
ADVERTISING 2.26%
HA-LO Industries* 240,000 $8,460,000
-------------
BIOTECHNOLOGY 1.60%
Arris Pharmaceutical* 113,000 1,582,000
CardioGenesis Corp* 60,000 1,035,000
UroMed Corp* 276,400 3,351,350
-------------
5,968,350
-------------
COMMERCIAL SERVICES 5.87%
ABR Information Services* 75,000 4,706,250
APAC TeleServices* 162,600 6,422,700
ClinTrials Research* 110,800 5,290,700
SITEL Corp* 210,400 5,523,000
-------------
21,942,650
-------------
COMPUTER LOCAL NETWORKS 4.36%
Ascend Communications* 109,100 7,296,062
FORE Systems* 111,400 9,023,400
-------------
16,319,462
-------------
COMPUTER PERIPHERALS & SUPPLIES 0.90%
Cerion Technologies* 20,000 290,000
FileNet Corp* 66,000 3,060,750
-------------
3,350,750
-------------
COMPUTER SOFTWARE 18.60%
Avant! Corp* 126,700 2,470,650
Brooktrout Technology* 55,000 2,502,500
CBT Group PLC Sponsored ADR* 183,800 8,638,600
Cognos Inc* 279,000 6,696,000
Edify Corp* 106,500 4,473,000
Epic Design Technology* 135,000 3,982,500
Health Systems Design* 41,000 768,750
i2 Technologies* 133,400 5,369,350
Lernout & Hauspie Speech Products NV* 63,000 2,331,000
Mechanical Dynamics* 23,400 415,350
Meridian Data* 220,200 3,825,975
Remedy Corp* 43,500 3,403,875
<PAGE>
SS & C Technologies* 22,000 434,500
Saville Systems PLC Sponsored ADR* 130,100 3,854,212
Summit Medical Systems* 218,400 5,214,300
Vantive Corp* 78,000 2,973,750
Veritas Software* 90,000 4,050,000
Wind River Systems* 77,550 2,471,906
Workgroup Technology* 204,900 5,711,588
-------------
69,587,806
-------------
COMPUTER SYSTEMS 6.41%
HBO & Co 80,740 10,082,408
Medic Computer Systems* 56,100 5,217,300
Sunquest Information Systems* 191,800 3,428,425
Transition Systems* 27,000 823,500
VeriFone Inc* 87,500 4,407,813
-------------
23,959,446
-------------
FINANCE RELATED 4.65%
AMRESCO Inc 150,000 2,756,250
Credit Acceptance* 130,000 2,600,000
Olympic Financial* 120,000 2,835,000
PMT Services* 182,000 6,188,000
Pre-Paid Legal Services* 145,000 3,026,875
-------------
17,406,125
-------------
HEALTH CARE RELATED 6.91%
Lincare Holdings* 157,100 5,930,525
Medaphis Corp* 98,600 3,722,150
Pharmaceutical Product Development* 82,500 3,671,250
Physician Reliance Network* 74,500 3,911,250
Schein (Henry) Inc* 97,300 3,600,100
Total Renal Care Holdings* 121,400 5,007,750
-------------
25,843,025
-------------
HEALTH MAINTENANCE ORGANIZATION 1.86%
Oxford Health Plans* 147,000 6,945,750
-------------
HOTELS 0.99%
Prime Hospitality* 231,400 3,702,400
-------------
INSURANCE 3.74%
Mercury General 79,100 3,460,625
Orion Capital 97,800 4,621,050
RISCORP Inc Class A* 100,000 2,250,000
United Insurance* 169,700 3,669,763
-------------
14,001,438
-------------
<PAGE>
MEDICAL RELATED 11.43%
Aksys Ltd* 32,500 552,500
Arterial Vascular Engineering* 144,700 6,104,531
Eclipse Surgical Technologies* 75,000 1,237,500
General Surgical Innovations* 159,200 3,184,000
Hologic Inc* 89,700 3,543,150
Lunar Corp* 63,200 2,528,000
Omnicare Inc 140,300 7,821,725
PAREXEL International* 162,800 8,831,900
Quintiles Transnational* 93,300 7,090,800
ResMed Inc* 75,000 1,293,750
UroCor Inc* 40,000 570,000
-------------
42,757,856
-------------
MEDICAL RELATED - DRUGS 4.51%
Bone Care International* 31,600 258,725
Elan Corp PLC ADR* 50,000 3,137,500
Fuisz Technologies Ltd* 200,000 5,300,000
NeXstar Pharmaceuticals* 187,100 4,630,725
SEQUUS Pharmaceuticals* 165,000 3,526,875
-------------
16,853,825
-------------
OIL & GAS RELATED 0.94%
Petroleum Geo-Services A/S
Sponsored ADR* 115,200 3,528,000
-------------
RETAIL 10.44%
Garden Botanika* 20,000 535,000
Garden Ridge* 108,300 5,685,750
Just For Feet* 70,200 3,764,475
Loehmann's Inc* 60,000 1,545,000
Marks Brothers Jewelers* 106,000 2,491,000
Meyer (Fred) Inc* 78,000 2,252,250
Proffitts Inc* 73,000 2,682,750
Rent-Way Inc* 104,600 1,464,400
Renters Choice* 100,000 2,700,000
Talbots Inc 94,000 3,066,750
US Office Products* 147,200 5,593,600
Wet Seal Class A* 150,000 3,806,250
Williams-Sonoma Inc* 125,000 3,468,750
-------------
39,055,975
-------------
SEMICONDUCTOR EQUIPMENT 4.07%
DSP Communications* 146,900 5,545,475
Integrated Device Technology* 245,000 3,154,375
Quickturn Design System* 220,000 3,231,250
TriQuint Semiconductor* 133,000 3,291,750
-------------
15,222,850
-------------
<PAGE>
TELECOMMUNICATIONS 6.92%
Aspect Telecommunications* 114,500 6,497,875
Davox Corp* 117,200 3,545,300
Digital Systems International* 249,400 5,517,975
IPC Information Systems* 177,900 3,780,375
Intermedia Communications of Florida* 91,00 3,185,000
PairGain Technologies* 32,900 3,347,575
-------------
25,874,100
-------------
TOBACCO 0.70%
Culbro Corp* 45,800 2,639,225
-------------
TOTAL COMMON STOCKS (Cost $283,435,036) 363,419,033
-------------
SHORT-TERM INVESTMENTS -
COMMERCIAL PAPER 2.84%
FINANCE RELATED 2.84%
Associates Corp of North America
5.370%, 6/3/1996 (Cost $10,625,000) 10,625,000 10,625,000
-------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $294,060,036) (Cost for
Income Tax Purposes
$294,149,595) 374,044,033
=============
* Security is non-income producing.
See Notes to Financial Statements
<PAGE>
INVESCO Emerging Opportunity Funds, Inc. --
Emerging Growth Fund
Statement of Assets and Liabilities
May 31, 1996
ASSETS
Investment Securities at Value
(Cost $294,060,036) $374,044,033
Cash 273,182
Receivables:
Fund Shares Sold 4,568,581
Dividends and Interest 14,254
Organization Costs 3,750
Prepaid Expenses and Other Assets 62,926
--------------
TOTAL ASSETS 378,966,726
--------------
LIABILITIES
Payables:
Investment Securities Purchased 5,986,800
Fund Shares Repurchased 2,860,943
Accrued Distribution Expenses 72,782
Accrued Expenses and Other Payables 17,089
--------------
TOTAL LIABILITIES 8,937,614
--------------
Net Assets at Value 370,029,112
==============
NET ASSETS
Paid-in Capital* 283,333,605
Accumulated Undistributed Net Investment Loss (6,379)
Accumulated Undistributed Net Realized Gain
on Investment Securities and Foreign Currency
Transactions 6,717,889
Net Appreciation of Investment Securities and
Foreign Currency Transactions 79,983,997
--------------
Net Assets at Value 370,029,112
==============
Net Asset Value, Offering and Redemption
Price per Share 14.38
==============
* The Fund has 600 million authorized shares of common stock, par value of $0.01
per share, of which 25,724,952 were outstanding at May 31, 1996.
See Notes to Financial Statements
<PAGE>
INVESCO Emerging Opportunity Funds, Inc. --
Emerging Growth Fund
Statement of Operations
Year Ended May 31, 1996
INVESTMENT INCOME
INCOME
Dividends $420,221
Interest 1,032,689
Foreign Taxes Withheld (2,713)
--------------
TOTAL INCOME 1,450,197
--------------
EXPENSES
Investment Advisory Fees 1,572,230
Distribution Expenses 524,453
Transfer Agent Fees 668,624
Administrative Fees 41,467
Custodian Fees and Expenses 53,094
Directors' Fees and Expenses 17,809
Organization Expenses 6,429
Professional Fees and Expenses 28,960
Registration Fees and Expenses 72,585
Reports to Shareholders 102,851
Other Expenses 16,645
--------------
TOTAL EXPENSES 3,105,147
Fees and Expenses Paid Indirectly (30,209)
--------------
NET EXPENSES 3,074,938
--------------
NET INVESTMENT LOSS (1,624,741)
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 15,778,132
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 80,619,041
--------------
NET GAIN ON INVESTMENT SECURITIES 96,397,173
--------------
Net Increase in Net Assets from Operations 94,772,432
==============
See Notes to Financial Statements
<PAGE>
INVESCO Emerging Opportunity Funds, Inc. --
Emerging Growth Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended May 31
------------ ------------
1996 1995
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $(1,624,741) $750,967
Net Realized Gain (Loss) on
Investment Securities and
Foreign Currency Transactions 15,778,132 (4,319,462)
Change in Net Appreciation of
Investment Securities and
Foreign Currency Transactions 80,619,041 10,422,490
------------ ------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 94,772,432 6,853,995
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income 0 (735,435)
Net Realized Gain on Investment Securities (3,120,041) (37,702,557)
------------ ------------
TOTAL DISTRIBUTIONS (3,120,041) (38,437,992)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 662,626,265 243,179,612
Reinvestment of Distributions 3,055,949 37,994,518
------------ ------------
665,682,214 281,174,130
Amounts Paid for Repurchases of Shares (541,032,810) (272,372,582)
------------ ------------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 124,649,404 8,801,548
------------ ------------
Total Increase (Decrease) in Net Assets 216,301,795 (22,782,449)
NET ASSETS
Beginning of Period 153,727,317 176,509,766
------------ ------------
End of Period (Including Accumulated
Undistributed Net Investment Income (Loss)
of ($6,379) and $15,532, respectively) 370,029,112 153,727,317
============ ============
FUND SHARE TRANSACTIONS
Shares Sold 55,676,741 22,648,812
Shares Issued from Reinvestment
of Distributions 261,428 4,141,671
------------ ------------
55,938,169 26,790,483
Shares Repurchased (46,615,111) (25,866,344)
------------ ------------
Net Increase in Fund Shares 9,323,058 924,139
============ ============
</TABLE>
See Notes to Financial Statements
<PAGE>
INVESCO Emerging Opportunity Funds, Inc. --
Emerging Growth Fund
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Emerging
Opportunity Funds, Inc. (the "Fund"), was incorporated in Maryland and presently
consists of the Emerging Growth Fund. The investment objective of the Fund is to
seek long-term capital growth. 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 revenues 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.
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
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.
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. 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 and original issue discount, is recorded on the accrual
basis. Cost is determined on the specific identification basis.
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.
Net capital loss carryovers utilized in 1996 amounted to $1,667,321.
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.
<PAGE>
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 foreign currency transactions, nontaxable
dividends, net operating losses and expired capital loss carryforwards.
For the year ended May 31, 1996, the Fund reclassified $1,602,830 from
accumulated undistributed net realized gain on investment securities to
accumulated undistributed net investment loss.
E. ORGANIZATION COSTS - Organization costs advanced by INVESCO Funds Group,
Inc. ("IFG") are amortized and are payable on a straight-line basis over a
sixty-month period from the date the Fund commenced operations. IFG has
agreed that if it redeems any of its initially acquired shares of the Fund
during the five years from the date the Fund commenced operations, the
proceeds payable to it in respect of such shares will be reduced by a
pro-rata share of the Fund's unamortized organization costs.
F. 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, Other
Expenses, which include Pricing Expenses, 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.
For the year ended May 31, 1996, Fees and Expenses Paid Indirectly
consisted of $27,838 included in Custodian Fees and Expenses and $2,371
included in Other Expenses.
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. 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 0.75% on the first $350
million of average net assets; reduced to 0.65% on the next $350 million of
average net assets; and 0.55% on average net assets in excess of $700 million.
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 are made by ITC. Fees for such sub-advisory services are paid by 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 received a transfer agent fee at an annual rate of $14.00 per
shareholder account, or per participant in an omnibus account through April 30,
1996. 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. As of
May 1, 1996, the transfer agent fee became $20.00 per shareholder account or,
where applicable per participant in an omnibus account, per year, computed in a
manner similar to the previous fee.
<PAGE>
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
reimbursement of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of average annual net assets. Amounts
accrued by the Fund are available to reimburse the Distributor for actual
expenditures incurred within a rolling twelve-month period. For the year ended
May 31, 1996, the Fund paid the Distributor $486,112 for reimbursement of
expenses incurred.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by the Fund.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended May
31, 1996, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were $560,652,230 and $446,816,400, respectively.
There were no purchases or sales of U.S. Government securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At May 31, 1996, the gross appreciation
of securities in which there was an excess of value over tax cost amounted to
$84,125,459 and the gross depreciation of securities in which there was an
excess of tax cost over value amounted to $4,231,021, resulting in net
appreciation of $79,894,438.
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or ITC.
The Fund has adopted an unfunded noncontributory defined benefit pension
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 equal to 25% of the retainer fee at
the time of retirement. As of July 1, 1996, benefits will be based on an annual
rate of 40% of the retainer fee at the time of retirement.
Pension expenses for the year ended May 31, 1996, included in Directors'
Fees and Expenses in the Statement of Operations were $2,293. Unfunded accrued
pension costs of $6,097 and pension liability of $12,476 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 10% 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. For the year ended May 31,
1996, there were no such borrowings.
<PAGE>
INVESCO Emerging Opportunity Funds, Inc. --
Emerging Growth Fund
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period
Ended
Year Ended May 31 May 31
------------------------------------------------ --------
1996 1995 1994 1993 1992^
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $9.37 $11.40 $9.89 $7.55 $7.50
------------------------------------------------ --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.06) 0.04 (0.01) (0.04) (0.02)
Net Gains on Securities
(Both Realized and Unrealized) 5.25 0.46 1.53 2.38 0.07
------------------------------------------------ --------
Total from Investment Operations 5.19 0.50 1.52 2.34 0.05
------------------------------------------------ --------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.04 0.00 0.00 0.00
Distributions from Capital Gains 0.18 2.49 0.01 0.00 0.00
------------------------------------------------ --------
Total Distributions 0.18 2.53 0.01 0.00 0.00
------------------------------------------------ --------
Net Asset Value - End of Period 14.38 9.37 11.40 9.89 7.55
================================================ ========
TOTAL RETURN 55.78% 4.98% 15.34% 30.95% 0.68%*
RATIOS
Net Assets - End of Period ($000 Omitted) $370,029 153,727 176,510 103,029 25,579
Ratio of Expenses to Average Net Assets# 1.48%@ 1.49% 1.37% 1.54% 1.93%~
Ratio of Net Investment Income (Loss)
to Average Net Assets# (0.78%) 0.41% (0.26%) (0.70%) (0.95%)~
Portfolio Turnover Rate 221% 228% 196% 153% 50%*
<FN>
^ From December 27, 1991, commencement of operations, to May 31, 1992.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the year
ended May 31, 1995. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.52% and ratio of net investment
income to average net assets would have been 0.38%.
@ Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
~ Annualized
</FN>
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Emerging Opportunity Funds, 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 Emerging Growth Fund (constituting
INVESCO Emerging Opportunity Funds, Inc., hereafter referred to as the "Fund")
at May 31, 1996, 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 periods indicated, 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 May 31, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures for unsettled security transactions, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
June 21, 1996
<PAGE>
INVESCO FUNDS
To receive general information and prospectuses
on any of INVESCO's funds or retirement plans,
or to obtain current account or price information,
call toll-free:
1-800-525-8085
To reach PAL(R), your 24-hour Personal
Account Line call: 1-800-424-8085
Or write to:
INVESCO Funds Group, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please 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 an effective prospectus.
