Semiannual Report
November 30, 1998
INVESCO
Small Company
Growth Fund
INVESCO
YOU SHOULD KNOW WHAT INVESCO KNOWS.(TM)
<PAGE>
Market Overview December 1998
"It was the best of times, it was the worst of times." For many investors,
the opening of Charles Dickens' A Tale of Two Cities best describes their
investments in 1998. On the one hand, investments in many large, domestic blue
chip companies have performed well. However, for investors in emerging markets
and small-cap stocks, it has been a different story.
This has been a year that tested the skills of even the most experienced
investor, with the domestic equity markets reaching unprecedented heights in the
spring of '98, suffering a severe correction, and then rallying again. But what
really changed in 1998?
o Economy: The domestic economy continues to expand even though many
developing nations are enduring recessions. With U.S. unemployment at record low
levels and real wages accelerating, consumers have been willing to spend. It is
important to remember that consumer spending is responsible for approximately
two-thirds of Gross Domestic Product. In addition, lower interest rates on
mortgages have enticed homeowners to refinance, increasing their disposable
income.
o Interest rates: As the global financial crisis intensified during the
last year, the threat of an overheating economy diminished, and interest rates
declined significantly -- with Treasury yields reaching levels not seen since
the 1950s and 1960s. In addition, slowing global growth and a global credit
crunch caused the Federal Reserve Board to lower the Fed funds rate by 25 basis
points three times in a seven-week period in the fall of '98. This was the first
move by the Fed since it increased the Fed funds rate in the spring of '97. With
falling commodity prices and benign inflation, the implied yield on a 30-year
Treasury has decreased about 0.75% since year-end 1997.
o Corporate Earnings: The strong U.S. dollar, intense price competition
worldwide, and slowing global economies have decreased revenues for many
multinationals, squeezing corporate profits. Furthermore, increasing wages (due
to the tight labor market) are also putting pressure on profit margins, and the
growth rate in corporate earnings has slowed.
o Market Volatility: The last four years have been rewarding for
investors, as domestic equity markets produced above-average returns with
limited volatility. However, this year volatility returned to the markets;
August 1998 marked the worst month for equities since October 1987. For the
long-term investor, volatility is just part of the price of doing business when
investing in equities.
<PAGE>
As we move into 1999, the market environment for domestic equities has
changed to an extent; yet, in many respects, it remains similar to the last four
years. Low inflation, declining interest rates, and positive domestic economic
growth lend support to the underlying fundamentals for equities. Granted, the
slowdown in many international economies may retard growth here at home, but it
appears that our economy is strong enough to weather the storm.
The U.S. remains the one global economic superpower. Compared to many
international firms, domestic com-panies are highly efficient, productive, and
profitable. The strong dollar and intense price competition slowed the rate of
growth in earnings in 1998, but the earnings outlook for 1999 appears brighter,
as many international economies start to recover. In addition, equity markets
are forward-looking in nature and seem to be telling us that the worst of the
global financial crisis may be over. However, investors should continue to
expect heavy day-to-day volatility in the equity markets and remain focused on
their long-term goals.
The line graph on page 2 illustrates the value of a $10,000 investment in
INVESCO Small Company Growth Fund, plus reinvested dividends and capital gain
distributions, from inception through 11/30/98. The chart and other total return
figures cited reflect the fund's operating expenses, but the index does not have
expenses, which would, of course, have lowered its performance.(1),(2)
INVESCO Small Company
Growth Fund
INVESCO Small Company Growth Fund
Average Annual Total Return
as of 11/30/98(1)
1 year 3.84%
---------------------------------
5 years 11.98%
---------------------------------
Since inception (12/91) 15.74%
---------------------------------
For the six-month period ended 11/30/98, INVESCO Small Company Growth Fund
had a total return of -2.86%. During the same period, the Russell 2000 had a
total return of -12.35%. The fund also outperformed its peer group for the
six-month period ended 11/30/98, with a return of -2.86% compared to -12.50% for
the average fund in the Lipper Small-Cap Fund category. (Lipper Analytical
Services, Inc., is an independent mutual fund analyst, which tracks total return
unadjusted for commissions. Of course, past performance is not a guarantee of
future results.)(1),(2)
Graph:
This line graph compares the value of a $10,000 investment in INVESCO
Small Company Growth Fund to the value of a $10,000 investment in the
Russell 2000 Index, assuming in each case reinvestment of all dividends
and capital gain distributions, for the period from inception (12/91)
through 11/30/98.
<PAGE>
Review & Outlook
A Conversation with Lead Portfolio Manager Stacie L. Cowell
SMALL-CAP STOCKS HAVE LAGGED THE BROADER MARKET OVER THE LAST FIVE YEARS;
BUT, IN THE FALL OF '98, ON A RELATIVE BASIS, THEY STARTED TO OUTPERFORM. WHAT'S
CHANGED?
I believe that we are close to a period of time when small-caps could
significantly outperform larger stocks. History has shown us that when
small-caps underperform large-caps for significant periods of time, as they have
over the last five years, in the following years small-caps significantly
outpace the Dow Jones Industrial Average and the S&P 500. (Of course, past
performance is not a guarantee of future results.)(2)
Small-caps were grossly oversold in the last year as increased market
volatility drove many investors to focus on large, liquid stocks with
predictable earnings. Presently, many large-cap stocks are selling at a 25%
premium compared to their growth rates, while many small-caps are selling at a
discount -- even though they are growing faster than their large-cap brethren.
WHAT DO YOU ATTRIBUTE THE FUND'S STRONG RELATIVE PERFORMANCE TO?
The fund's holdings in technology stocks were a major positive factor over
the past six months. In addition, many of our holdings in consumer cyclicals
also performed well, especially those firms specializing in business services.
Furthermore, we remained disciplined in our approach, seeking small-cap
growth companies which have the ability to deliver superior financial returns
over the next three to five years. By maintaining our core strategy when the
equity markets corrected, we were able to improve the quality of holdings in the
portfolio and enhance the fund's relative position.
WHAT MAJOR CHANGES HAVE YOU MADE TO THE FUND IN THE LAST SIX MONTHS?
Probably the most significant change we made was an increased weighting in
semiconductors. These stocks were devastated when the market corrected in the
late summer and early fall, even though their long-term potential remains
bright. This created an investment opportunity to purchase solid companies at
historically cheap valuation levels, and helped the fund's performance as these
holdings experienced significant appreciation when the market rallied in the
fall.
WHAT INDUSTRIES OR SECTORS ARE YOU PRESENTLY FAVORING?
We use a bottom-up approach when selecting securities for the portfolio,
so we don't make sector calls. We prefer companies that have proprietary
technology or products and are leaders in their respective markets. Presently, I
believe that some of the best growth opportunities may exist in the technology,
telecommunications, consumer cyclicals, and health care sectors. I'm also
excited about the growth potential of the Internet, as Internet usage is
doubling nearly every 90 days. Market-leading firms like Lycos Inc. have
produced strong returns for the fund in the last year.
Keep in mind that the fund is actively managed, so composition of holdings
will change over time.
WHAT ARE A FEW OF YOUR FAVORITE STOCKS?
o Unitrode Corp. is a firm that designs, manufactures, markets and sells a
range of analog/linear circuits to a variety of industries. They are benefiting
from strong domestic demand for their products and may experience accelerating
earnings and revenues as their inventories are decreased.
o Rational Software is a company which specializes in developing and
managing software systems, and which also provides a wide range of technical
support from consulting to training. Rational is benefiting from the growing
trend of outsourcing and should experience strong growth over the next three to
five years.
<PAGE>
WHAT'S YOUR NEAR-TERM OUTLOOK FOR SMALL-CAPS?
I'm upbeat about the long-term prospects, but the market for these
securities may remain volatile over the near term.
From a valuation standpoint, not since 1990 have small-caps been as
attractively valued compared to their growth rates. For the patient investor,
small-cap growth stocks may have dynamic potential over the next three to five
years. Furthermore, these companies have limited international exposure which
makes them less susceptible to the financial and economic problems occurring in
many emerging and developing nations.
(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 Russell 2000 is an unmanaged index indicative of
smaller-capitalization stocks, while the S&P 500 and Dow Jones Industrial
Average reflect the broad market and large-cap stocks, respectively.
Fund Management
Stacie L. Cowell was named lead manager of the fund as of June 1, 1998,
after serving as co-manager since 1997. She earned her BA in Economics from
Colgate University and is a Chartered Financial Analyst. Prior to joining
INVESCO, Stacie was a senior equities analyst with Founders Asset Management,
and a capital markets and trading analyst with Chase Manhattan Bank. She is
assisted by co-managers Tim J. Miller and Trent E. May.
Tim, a senior vice president, heads up INVESCO's growth investment team.
He received his MBA from the University of Missouri, and a BSBA from St. Louis
University. A 19-year veteran of the investment business, he is a Chartered
Financial Analyst. Before joining INVESCO in 1992, Tim was an analyst and
portfolio manager with Mississippi Valley Advisors.
Vice President Trent May received a BS from the Florida Institute of
Technology and a MBA from Rollins College. Before joining INVESCO in 1996, Trent
was a senior equity manager/equity analyst with Munder Capital Management. He is
a Chartered Financial Analyst.
<PAGE>
INVESCO Fund Codes
These two-digit codes appear after your account number on Investment
Summaries and confirmations. You may also use them to request information about
specific funds on PAL(R), your Personal Account Line.
MONEY MARKET FUNDS
44 U.S. Government Money Fund
25 Cash Reserves
40 Tax-Free Money Fund
BOND FUNDS
33 Short-Term Bond
47 Intermediate Government Bond
32 U.S. Government Securities
30 Select Income
31 High Yield
36 Tax-Free Intermediate Bond
35 Tax-Free Long-Term Bond
COMBINATION STOCK & BOND FUNDS
15 Industrial Income
70 Multi-Asset Allocation
48 Total Return
71 Balanced Equity Funds
STOCK FUNDS
21 Growth & Income
10 Blue Chip Growth
20 Dynamics
60 Small Company Growth
61 INVESCO Endeavor
46 Value Equity
74 Small Company Value
23 S&P 500 Index Fund --Class II
SECTOR FUNDS
50 Energy
59 Environmental Services
57 Financial Services
51 Gold
52 Health Sciences
53 Leisure
42 Realty
55 Technology -- Class II
58 Utilities
38 Worldwide Capital Goods
39 Worldwide Communications
INTERNATIONAL FUNDS
09 International Blue Chip
49 International Growth
43 Emerging Markets
41 Asian Growth
54 Pacific Basin
56 European
37 European Small Company
34 Latin American Growth
<PAGE>
TEN LARGEST COMMON STOCK HOLDINGS -- SMALL COMPANY GROWTH FUND
November 30, 1998
Description Value
- --------------------------------------------------------------------------------
Unitrode Corp $ 4,623,938
SFX Entertainment Class A 3,789,450
AXENT Technologies 3,570,563
HA-LO Industries 3,545,063
Aeroflex Inc 3,468,413
MAPICS Inc 3,323,813
Orbital Sciences 3,232,508
Safeguard Scientifics 3,227,625
First Consulting Group 3,196,000
USWeb Corp 3,185,000
Composition of holdings is subject to change.
--------------------------------
STATEMENT OF INVESTMENT SECURITIES --SMALL COMPANY GROWTH FUND
November 30, 1998
UNAUDITED
- --------------------------------------------------------------------------------
Shares or
Principal
% Descripton Amount Value
- --------------------------------------------------------------------------------
79.46 COMMON STOCKS
3.27 AEROSPACE & DEFENSE
Aeroflex Inc(a) 253,400 $ 3,468,413
Moog Inc Class A(a) 87,800 2,546,200
Orbital Sciences(a) 84,510 3,232,508
- --------------------------------------------------------------------------------
9,247,121
- --------------------------------------------------------------------------------
1.09 AIR FREIGHT
Eagle USA Airfreight(a) 162,800 3,093,200
- --------------------------------------------------------------------------------
1.67 AUTO PARTS
CSK Auto(a) 102,200 2,848,825
O'Reilly Automotive(a) 41,000 1,860,375
- --------------------------------------------------------------------------------
4,709,200
- --------------------------------------------------------------------------------
<PAGE>
1.91 BANKS
City National 84,480 3,157,440
US Trust 33,000 2,231,625
- --------------------------------------------------------------------------------
5,389,065
- --------------------------------------------------------------------------------
0.98 CABLE
TCA Cable TV 97,000 2,764,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares or
Principal
% Descripton Amount Value
- -------------------------------------------------------------------------------
5.50 COMMUNICATIONS -- EQUIPMENT &
MANUFACTURING
Comverse Technology(a) 34,000 $ 1,955,000
Excel Switching(a) 80,000 2,090,000
GeoTel Communications(a) 43,600 1,199,000
Gilat Satellite Networks Ltd(a) 54,600 2,777,775
Melita International(a) 139,800 2,097,000
Power Integrations(a) 96,100 2,306,400
REMEC Inc(a) 224,150 3,110,081
- --------------------------------------------------------------------------------
15,535,256
- --------------------------------------------------------------------------------
11.39 COMPUTER RELATED
Citrix Systems(a) 17,500 1,452,500
Kronos Inc(a) 35,700 1,544,025
Lycos Inc(a) 24,000 1,416,000
MAPICS Inc(a) 171,000 3,323,813
Mercury Interactive(a) 51,000 2,339,625
Metro Information Services(a) 115,000 2,990,000
Micromuse Inc(a) 75,000 1,710,938
Mobius Management Systems(a) 115,180 1,353,365
Peregrine Systems(a) 60,600 2,238,412
QuadraMed Corp(a) 88,600 2,126,400
Rational Software(a) 127,000 2,881,312
Spyglass Inc(a) 53,000 1,245,500
USWeb Corp(a) 140,000 3,185,000
Verity Inc(a) 140,000 2,415,000
Wind River Systems(a) 42,275 1,971,072
- --------------------------------------------------------------------------------
32,192,962
- --------------------------------------------------------------------------------
1.04 CONTAINERS
Ivex Packaging(a) 151,300 2,950,350
- --------------------------------------------------------------------------------
0.45 DISTRIBUTION
Natrol Inc(a) 125,800 1,273,725
- --------------------------------------------------------------------------------
4.28 ELECTRONICS
Aehr Test Systems(a) 200,000 900,000
Cerprobe Corp(a) 140,050 2,048,231
Level One Communications(a) 76,000 2,351,250
Mettler-Toledo International(a) 110,300 2,895,375
Simac Techniek NV 15,000 1,926,728
Uniphase Corp(a) 36,200 1,961,587
- --------------------------------------------------------------------------------
12,083,171
- --------------------------------------------------------------------------------
<PAGE>
7.44 ELECTRONICS -- SEMICONDUCTOR
Applied Micro Circuits(a) 52,500 1,758,750
Flextronics International Ltd(a) 35,000 2,327,500
- --------------------------------------------------------------------------------
Shares or
Principal
% Descripton Amount Value
- --------------------------------------------------------------------------------
Galileo Technology Ltd(a) 110,000 $ 1,815,000
Genesis Microchip(a) 164,000 2,736,750
PMC-Sierra Inc(a) 25,000 1,346,875
Photronics Inc(a) 140,000 2,800,000
QLogic Corp(a) 13,700 1,405,962
SIPEX Corp(a) 69,000 2,225,250
Unitrode Corp(a) 273,000 4,623,938
- --------------------------------------------------------------------------------
21,040,025
- --------------------------------------------------------------------------------
1.34 ENTERTAINMENT
SFX Entertainment Class A(a) 75,600 3,789,450
- --------------------------------------------------------------------------------
6.29 HEALTH CARE RELATED
Capital Senior Living(a) 204,000 2,524,500
Colorado MEDtech(a) 116,700 1,050,300
First Consulting Group(a) 136,000 3,196,000
HealthCare Financial Partners(a) 90,000 2,958,750
Laser Vision Centers(a) 7,200 128,250
Province Healthcare(a) 83,300 2,665,600
ResMed Inc(a) 73,000 2,491,125
Sunrise Assisted Living(a) 64,000 2,760,000
- --------------------------------------------------------------------------------
17,774,525
- --------------------------------------------------------------------------------
2.98 LEISURE TIME
Action Performance(a) 78,200 2,854,300
Family Golf Centers(a) 141,300 2,905,481
Intrawest Corp 165,000 2,650,312
- --------------------------------------------------------------------------------
8,410,093
- --------------------------------------------------------------------------------
1.69 OIL & GAS RELATED
Key Energy Group(a) 170,000 1,062,500
Newfield Exploration(a) 93,300 1,819,350
Precision Drilling(a) 118,000 1,275,875
Stolt Comex Seaway SA(a) 75,000 632,812
- --------------------------------------------------------------------------------
4,790,537
- --------------------------------------------------------------------------------
<PAGE>
1.84 PERSONAL CARE
Helen of Troy Ltd(a) 134,000 2,244,500
Playtex Products(a) 190,000 2,945,000
- --------------------------------------------------------------------------------
5,189,500
- --------------------------------------------------------------------------------
5.84 RETAIL
Cost Plus(a) 85,000 2,805,000
Family Dollar Stores 128,000 2,568,000
Men's Wearhouse(a) 75,000 1,898,438
Pacific Sunwear of California(a) 96,000 1,422,000
Rental Service(a) 147,000 3,114,562
Software.net Corp(a) 39,400 856,950
Stage Stores(a) 74,000 851,000
- --------------------------------------------------------------------------------
Shares or
Principal
% Descripton Amount Value
- --------------------------------------------------------------------------------
Wild Oats Markets(a) 105,000 $ 2,992,500
- --------------------------------------------------------------------------------
16,508,450
- --------------------------------------------------------------------------------
0.57 SAVINGS & LOAN
FirstFed Financial(a) 90,000 1,597,500
- --------------------------------------------------------------------------------
14.11 SERVICES
ACNielsen Corp(a) 75,000 2,067,188
AHL Services(a) 57,650 1,902,450
Atlantic Data Services(a) 69,000 1,242,000
AXENT Technologies(a) 137,000 3,570,563
Concord EFS(a) 67,750 2,155,297
Cotelligent Group(a) 154,200 2,823,788
Documentum Inc(a) 53,000 2,229,313
HA-LO Industries(a) 111,000 3,545,063
Integrated Electrical Services(a) 82,000 1,568,250
Interim Services(a) 138,200 2,867,650
Jack Henry & Associates 25,220 1,267,305
Metzler Group(a) 30,200 1,253,300
NCO Group(a) 50,800 1,873,250
ProBusiness Services(a) 33,200 1,460,800
Profit Recovery Group
International(a) 43,200 1,458,000
Romac International(a) 181,000 2,522,687
Safeguard Scientifics(a) 114,000 3,227,625
Sylvan Learning Systems(a) 98,000 2,848,125
- --------------------------------------------------------------------------------
39,882,654
- --------------------------------------------------------------------------------
<PAGE>
4.45 TELECOMMUNICATIONS -- LONG DISTANCE
Dycom Industries(a) 53,300 2,095,356
ICG Communications(a) 115,000 2,645,000
IDT Corp(a) 145,000 2,809,375
Pacific Gateway Exchange(a) 44,000 1,969,000
Viatel Inc(a) 205,000 3,049,375
- --------------------------------------------------------------------------------
12,568,106
- --------------------------------------------------------------------------------
0.65 TEXTILE -- APPAREL MANUFACTURING
Quiksilver Inc(a) 76,000 1,843,000
- --------------------------------------------------------------------------------
0.68 TEXTILE -- HOME FURNISHINGS
Linens 'n Things(a) 62,600 1,917,125
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $207,038,977) 224,549,515
- --------------------------------------------------------------------------------
Principal
% Descripton Amount Value
- --------------------------------------------------------------------------------
20.54 SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS
Repurchase Agreement with
State Street dated 11/30/1998
due 12/1/1998 at 5.100%,
repurchased at $58,063,224
(Collateralized by US
Treasury Bonds due
4/15/2028 at 3.625%,
value $59,638,426)
(Cost $58,055,000)
$ 58,055,000 $58,055,000
- --------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $265,093,977)
(Cost for Income Tax Purposes
$267,057,741) $ 282,604,515
================================================================================
(a) Security is non-income producing.
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES --
SMALL COMPANY GROWTH FUND
November 30, 1998
UNAUDITED
ASSETS
Investment Securities at Value(a)
(Cost $265,093,977)(a) $ 282,604,515
Cash 208,157
Receivables:
Investment Securities Sold 2,965,880
Fund Shares Sold 606,301
Dividends and Interest 11,164
Prepaid Expenses and Other Assets 124,187
- --------------------------------------------------------------------------------
TOTAL ASSETS 286,520,204
- --------------------------------------------------------------------------------
LIABILITIES
Payables:
Investment Securities Purchased 2,452,557
Fund Shares Repurchased 10,351,399
Accrued Distribution Expenses 54,054
Accrued Expenses 266,596
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 13,124,606
- --------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 273,395,598
================================================================================
NET ASSETS
Paid-in Capital(b) $ 237,818,949
Accumulated Undistributed Net
Investment Loss (653,747)
Accumulated Undistributed Net
Realized Gain on Investment
Securities and Foreign Currency Transactions 18,719,858
Net Appreciation of Investment Securities
and Foreign Currency Transactions 17,510,538
- --------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 273,395,598
================================================================================
NET ASSET VALUE, Offering and Redemption
Price per Share $ 11.56
================================================================================
(a) Investment securities at cost and value at November 30, 1998 include a
repurchase agreement of $58,055,000.
(b) The Fund has 600 million authorized shares of common stock, par value of
$0.01 per share, of which 23,648,672 were outstanding at November 30, 1998.
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS --
SMALL COMPANY GROWTH FUND
Six Months Ended November 30, 1998
UNAUDITED
INVESTMENT INCOME
INCOME
Dividends $ 127,412
Interest 1,108,143
Foreign Taxes Withheld (1,163)
- --------------------------------------------------------------------------------
TOTAL INCOME 1,234,392
- --------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 936,287
Distribution Expenses 312,096
Transfer Agent Fees 519,473
Administrative Fees 23,726
Custodian Fees and Expenses 34,031
Directors' Fees and Expenses 10,994
Professional Fees and Expenses 17,887
Registration Fees and Expenses 41,072
Reports to Shareholders 59,410
Other Expenses 5,704
- --------------------------------------------------------------------------------
TOTAL EXPENSES 1,960,680
Fees and Expenses Absorbed by Investment Adviser (73,232)
Fees and Expenses Paid Indirectly (14,998)
- --------------------------------------------------------------------------------
NET EXPENSES 1,872,450
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (638,058)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities (7,961,038)
Foreign Currency Transactions 68,795
- --------------------------------------------------------------------------------
Total Net Realized Gain (Loss) (7,892,243)
- --------------------------------------------------------------------------------
Change in Net Appreciation of:
Investment Securities 3,966,110
Foreign Currency Transactions 70,693
- --------------------------------------------------------------------------------
Total Net Appreciation 4,036,803
- --------------------------------------------------------------------------------
NET LOSS ON INVESTMENT
SECURITIES AND FOREIGN
CURRENCY TRANSACTIONS (3,855,440)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (4,493,498)
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS -- SMALL COMPANY GROWTH FUND
Six Months Year
Ended Ended
November 30 May 31
- --------------------------------------------------------------------------------
1998 1998
UNAUDITED
OPERATIONS
Net Investment Loss $ (638,058) $ ( 1,309,186)
Net Realized Gain (Loss) on
Investment Securities and
Foreign Currency Transactions (7,892,243) 74,467,963
Change in Net Appreciation (Depreciation)
of Investment Securities and Foreign
Currency Transactions 4,036,803 (10,293,630)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS (4,493,498) 62,865,147
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET REALIZED GAIN
ON INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS 0 (70,523,447)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 244,911,979 517,944,195
Reinvestment of Distributions 0 68,478,048
- --------------------------------------------------------------------------------
244,911,979 586,422,243
Amounts Paid for Repurchases of Shares (239,641,574) (600,416,027)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 5,270,405 (13,993,784)
- --------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 776,907 (21,652,084)
NET ASSETS
Beginning of Period 272,618,691 294,270,775
- --------------------------------------------------------------------------------
End of Period (Including Accumulated
Undistributed Net Investment
Loss of $653,747 and
$15,689, respectively) $ 273,395,598 $ 272,618,691
================================================================================
-----------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 22,764,686 38,262,375
Shares Issued from
Reinvestment of Distributions 0 6,425,767
- --------------------------------------------------------------------------------
22,764,686 44,688,142
Shares Repurchased (22,025,050) (44,729,581)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN FUND SHARES 739,636 (41,439)
================================================================================
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- SMALL COMPANY GROWTH FUND
UNAUDITED
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Emerging
Opportunity Funds, Inc. (the "Fund") is incorporated in Maryland and presently
consists of Small Company 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 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.
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.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in
the possession of the Fund's custodian. The collateral is evaluated
daily to ensure its market value exceeds the current market value of
the repurchase agreement including accrued interest. In the event of
default on the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral or
proceeds may be subject to legal proceedings.
<PAGE>
C. 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,
original issue discount and amortized premium, is recorded on the accrual
basis. Income and expenses on foreign securities are translated into U.S.
dollars at rates of exchange prevailing when accrued. Cost is determined on
the specific identification basis. The cost of foreign securities is
translated into U.S. dollars at the rates of exchange prevailing when such
securities are acquired.
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 condi- tions 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.
D. 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.
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.
<PAGE>
E. 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.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into
short-term forward foreign currency contracts in connection with planned
purchases or sales of securities as a hedge against fluctuations in foreign
exchange rates pending the settlement of transactions in foreign
securities. A forward foreign currency contract is an agreement between
contracting parties to exchange an amount of currency at some future time
at an agreed upon rate. These contracts are marked-to-market daily and the
related appreciation or depreciation of the contracts is presented in the
Statement of Assets and Liabilities. Any realized gain or loss incurred by
the Fund upon the sale of securities is included in the Statement of
Operations.
G. 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. Such credits
are included in Fees and Expenses Paid Indirectly in the Statement of
Operations.
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 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.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsuduary of IFG, to a
maximum of 0.25% of annual average net assets. For the six months ended November
30, 1998, the Fund paid the Distributor $319,235 under the plan of distribution.
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.
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 has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by the Fund.
<PAGE>
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months ended
November 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 $193,906,573 and $211,048,197, respectively.
There were no purchases or sales of U.S. Government securities.
NOTE 4 -- APPRECIATION AND DEPRECIATION. At November 30, 1998, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $35,739,921 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $20,193,147, resulting in net
appreciation of $15,546,774.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IDI.
The Fund has adopted an unfunded defined benefit 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 were based on an annual rate equal to 40% of the
retainer fee at the time of retirement. As of July 1, 1998, benefits are based
on the annual rate of 50% of the sum of the retainer fee at the time of
retirement plus the annual meeting fee.
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of selected INVESCO
Funds. The deferred amounts are being invested in the shares of all of the
INVESCO and Treasurer's Series Trust Funds.
Pension expenses for the six months ended November 30, 1998, included in
Directors' Fees and Expenses in the Statement of Operations were $2,532.
Unfunded accrued pension costs of $7,327 and pension liability of $25,549 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 November 30, 1998, there
were no such borrowings.
<PAGE>
OTHER INFORMATION
UNAUDITED
YEAR 2000 COMPUTER ISSUE. Many computer systems in use today may not be
able to recognize any date after December 31, 1999. If these systems are not
fixed by that date, it is possible that they could generate erroneous
information or fail altogether. INVESCO has committed substantial resources in
an effort to make sure that its own major computer systems will continue to
function on and after January 1, 2000. Of course, INVESCO cannot fix systems
that are beyond its control. If INVESCO's own system, or the systems of third
parties upon which it relies, do not perform properly after December 31, 1999,
the Funds could be adversely affected.
In addition, the markets for, or values of, securities in which the Funds
invest may possibly be hurt by computer failures affecting portfolio investments
or trading of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Funds' investments.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- SMALL COMPANY GROWTH FUND
(For a Fund Share Outstanding Throughout Each Period)
Six Months
Ended
November 30 Year Ended May 31
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1998 1997 1996 1995 1994
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.90 $ 12.82 $ 14.38 $ 9.37 $ 11.40 $ 9.89
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.03) (0.06) (0.07) (0.06) 0.04 (0.01)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.31) 2.56 (0.96) 5.25 0.46 1.53
- -------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.34) 2.50 (1.03) 5.19 0.50 1.52
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.00 0.00 0.00 0.04 0.00
Distributions from Capital Gains 0.00 3.42 0.53 0.18 2.49 0.01
- -------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 3.42 0.53 0.18 2.53 0.01
- -------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 11.56 $ 11.90 $ 12.82 $ 14.38 $ 9.37 $ 11.40
=======================================================================================================
TOTAL RETURN (2.86%) 22.65% (7.08%) 55.78% 4.98% 15.34%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 273,396 $ 272,619 $294,259$370,029 $153,727$176,510
Ratio of Expenses to Average Net Assets 0.76% 1.48% 1.52% 1.48% 1.49% 1.37%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.26%) (0.42%) (0.55%) (0.78%) 0.41% (0.26%)
Portfolio Turnover Rate 91% 158% 216% 221% 228% 196%
(a) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(b) Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended November 30, 1998 and the years ended May 31, 1997 and 1995.
If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 0.79%, 1.54% and 1.52%, respectively,
and ratio of net investment income (loss) to average net assets would have
been (0.29%), (0.57%) and 0.38%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
</TABLE>
<PAGE>
EasiVest makes it easy to pay yourself first.
It seems that for most of us the hardest part of investing at regular
intervals comes down to imply writing the check, finding the stamp, and putting
it in the mail. But with INVESCO's EasiVest it's so easy that we'll do almost
all the work for you.
After you fill out the authorization and return it with a voided check, the
exact dollar amount you specify will be electronically transferred from your
bank account to your designated fund on the same day each month.
USING EASIVEST IS ONE OF THE FEW TIME WHEN YOU'LL FIND THE EASY WAY MAY ALSO BE
ON OF THE BEST.
For years smart investors have used an investment strategy known as
dollar-cost averaging. It only makes sense that when prices are high an investor
will want to buy fewer shares, and when prices are low he will want to buy more.
By investing a fixed amount at regular intervals with INVESCO's EasiVest, you
can take advantage of these market fluctuations.
Over a sufficient period of time, dollar-cost averaging may make the average
price you pay per share less than the actual average price per share. So follow
the lead of successful investors and take advantage of dollar-cost averaging
with INVESCO's EasiVest.
Like other investment systems, periodic investment plans to not insure a
profit, nor do they protect against loss in a falling market. Since these plans
involve continuous investment in securities regardless of fluctuating price
levels in the market, you should consider your financial ability to continue
purchases through low price levels. Finally, be aware that you will incur a loss
under the plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
Just follow these simple authorization instructions and let INVESCO's
EasiVest help you build for your future.
1. Call your bank for their ABA and account numbers. Then complete the
EasiVest authorization and sign it the same way you would your personal
checks.
2. Enclose an unsigned, personal check or savings deposit slip marked "Void."
3. Place a voided check or savings deposit slip and signed authorization form
in an envelope; then mail it to us.
It's that easy to start building your mutual fund portfolio. And you can take
advantage of INVESCO's EasiVest with as little as $50 a month.
QUESTIONS? CALL US AT 1-800-525-8085.
START BUILDING FOR YOUR FUTURE TODAY.
<PAGE>
EASIVEST AUTHORIZATION FOR AUTOMATIC INVESTMENTS
BEFORE RETURNING THIS AUTHORIZATION, PLEASE BE SURE TO CONTACT YOUR BANK FOR
THE CORRECT ABA NUMBER AND ACCOUNT NUMBER.
I authorize INVESCO Funds Group to transfer money from my checking or savings
account on or about the 7th or 21st (check one) day of each month for the
amounts and funds indicated below:
Fund___________________________________ Acct.#_______________________________
$__________________________ ($50 minimum) ___ 7th ___21st
- ----------------------------------------------------------------------------
Bank Name
- ----------------------------------------------------------------------------
Bank Street Address
- ----------------------------------------------------------------------------
City, State, Zip
- ----------------------------------------------------------------------------
- ------------------------------------ (--------------)------------------
ABA Number (available from your bank) Bank Phone Number
__________________________________ This is a __Checking Account
__ Savings Account
Bank Account Number
- ----------------------------------------------------------------------------
Owner's Name (First, Middle Initial, Last)
- ----------------------------------------------------------------------------
Joint Owner's Name (First, Middle Initial, Last)
- ----------------------------------------------------------------------------
Owner Street Address
- ----------------------------------------------------------------------------
City, State, Zip
- ----------------------------------------------------------------------------
Signature Date
- ----------------------------------------------------------------------------
Signature Date
- -------------------------------------------(------)-------------------------
Daytime Telephone Number Evening Telephone Number
DON'T FORGET TO ATTACH A VOIDED CHECK OR DEPOSIT SLIP.
This authority is to remain in effect until I revoke it in writing and, until
INVESCO receives such notification, I agree INVESCO will be fully protected in
honoring any such electronic debit. I further agree that if any such electronic
debit is not honored, whether with cause or without cause and whether
intentionally or unintentionally, INVESCO will not be liable whatsoever. This
authorization will become a part of the fund application subject to the terms,
representations and conditions thereof.
Like other investment systems, period investment plans do not insure a profit,
nor do they protect against loss in a falling market. Since these plans involve
continuous investment in securities regardless of fluctuating price levels in
the market, you should consider your financial ability to continue purchases
through low price levels. Finally, be aware that you will incur a loss under the
plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
<PAGE>
INVESCO
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.
