ANNUAL REPORT
July 31, 1996
INVESCO
SMALL
COMPANY
FUND
A no-load fund seeking
long-term capital growth
INVESCO FUNDS
<PAGE>
Market Overview August 1996
Over the first seven months of 1996, the securities markets
have been exceptionally attentive to figures: Gross Domestic Product,
unemployment, and earnings growth. Each announcement of fresh data has sent the
stock market and other securities market indexes moving in a new direction.
Based on a moderate economic expansion, the stock market advanced 9.60%
for the year-to-date as of 5/31/96. But, as expectations of economic vigor grew,
investors began to see the likelihood of accelerating inflation. This in turn
made action by the Federal Reserve Board appear more probable -- hikes in
short-term interest rates. In June, the stock market advanced a mere 0.40%; in
July, the index declined sharply.(1),(2)
Since 1994 the Federal Reserve Board has actively manipulated short-term
rates, seeking to maintain economic expansion without sparking inflation.
Recently, there has been some indication that the Fed may allow a slightly
higher level of inflation before tightening credit availability; however, their
overall strategy is unlikely to alter in the near-term, given an impending
presidential election and the recent reappointment of Alan Greenspan as Fed
chairman.
According to the Bureau of Labor Statistics, less than 200,000 new jobs
were created in July 1996. While inflation is still considered a threat by some
analysts, the most recent unemployment figure was low enough to convince the
markets that the Fed would not launch a preemptive strike against inflation in
the summer. In addition, earnings reports from a variety of industries were
convincingly strong. Stocks and bonds subsequently rallied.
INVESCO Small Company Fund
As the line graph illustrates, for the period from inception through
7/31/96, the value of a $10,000 investment in INVESCO Small Company Fund, plus
reinvested dividends and capital gain distributions, would have risen to
$12,665. 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.(2)
For the one-year period ended 7/31/96, INVESCO Small Company Fund had a
total return of 6.47%, compared to a total return of 7.02% for
smaller-capitalization stocks, as measured by the Russell 2000 and 16.45% for
the broader market as represented by the S&P 500. (Of course, past performance
is not a guarantee of future results.)(1),(2)
Small Company Fund
Average Annualized Total Return
as of 7/31/96(2)
1 year 6.47%
-----------------------------------------
Since Inception (12/93) 9.26%
-----------------------------------------
<PAGE>
Throughout 1995, smaller-cap stocks lagged the broader market. While past
performance is not a guarantee of future results, over the 12 months ended
12/31/95, the Russell 2000 Index of smaller-cap stocks advanced 28.45%, compared
to 37.46% for the S&P 500. Small-caps overtook the broad market over the first
five months of this year, when the Russell 2000 had a total return of 15.09%,
versus 9.60% for the S&P 500. Summer signalled a downturn for both large- and
smaller-cap equities, quickly followed by an August rally.(1),(2)
Graph: Small Company Fund Total Return from Inception(12/93)
through 07/31/96
This line graph compares the value of a $10,000 investment in INVESCO
Small Company 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 (12/1/93)
through 7/31/96.
1996's turbulent market has been challenging for investors. Various
sectors have outperformed during different periods; while Small Company Fund is
managed with an eye towards the long-term potential of any holding, we have
adjusted our mix over the past 12 months in response to changing market
conditions.
For example, consumer cyclical stocks generally performed well over the
first half of 1996. At the beginning of this year, we had already overweighted
fund holdings in this area. Retail in particular has proven a profitable area
for the fund over the past months.
Graph: Small Company Fund Diversification by Value of Total Net
Assets
This graph reflects the allocation of the Small Company Fund's portfolio
as a percentage of total net assets in basic materials, capital goods and
construction, consumer cylical, consumer staples, energy, finance,
technology, transportation and services, utilities, and cash and cash
equivalents as of 1/31/95, 7/31/95 and 7/31/96.
More recently, we have trimmed positions in these stocks, in anticipation
of a cyclical market shift towards companies with predictable steady earnings
growth within the consumer staples area. Newer holdings here include
medical-related companies such as ADAC Laboratories and Advanced Technology
Laboratories, as well as OEC Medical Systems, which provides medical
instruments. Interest-rate sensitive stocks have underperformed the market this
year. Prices were driven down by the apparent likelihood of short-term interest
rate increases. Mid-summer, it became clear the Federal Reserve Board was not
poised to act near-term. Recently, we have increased our allocation in carefully
selected financial stocks. Over the past year, we have opened positions in
banking stocks, including Cal Fed Bancorp, Cullen Frost Bankers, USBANCORP
<PAGE>
Inc, and Zions Bancorp. Fremont General and NAC Re are new to our
insurance holdings.
Despite the summer correction, technology remains a key component of our
overall strategy. In preference to more speculative industries such as computer
hardware -- where earnings growth is likely to slow -- we have focused holdings
on areas like electronics, as well as computer services, software, and systems.
Cellular telecommunications and biotechnology are additional fields of interest.
Fund Management
INVESCO Small Company Fund is managed by Bob Slotpole, senior vice
president and director of equities for INVESCO Management & Research, Inc. He
earned an MBA from Stanford University, as well as a BS from the State
University of New York-Buffalo. Bob began his investment career in 1975.
Previously, he was associated with First Boston and Lehman Brothers.
(1) The S&P 500 and Russell 2000 are unmanaged indices of common stocks
considered to be representative of the broad stock market and
smaller-capitalization stock market, respectively.
(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.
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Ten Largest Common Stock Holdings
July 31, 1996
Description Value
- ------------------------------------------------------------------
Universal Corp $1,012,875
Health Management Systems 883,300
ICOS Corp 849,325
Washington National 820,463
Universal Health Services Class B 814,875
Protective Life 807,812
Cullen Frost Bankers 779,350
Measurex Corp 776,262
PHH Corp 702,900
CCB Financial 672,750
Composition of holdings is subject to change.
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Statement of Investment Securities
July 31, 1996
Shares or
Principal
Description Amount Value
- ------------------------------------------------------------------------------
COMMON STOCKS 100.00%
ADVERTISING 0.43%
True North Communications 11,600 $ 207,350
------------
AUTOMOBILE RELATED 2.23%
Borg-Warner Automotive 10,400 364,000
Intermet Corp* 27,400 351,062
SPX Corp 5,400 134,325
Smith (A O) 9,700 215,825
------------
1,065,212
------------
BANKING 7.18%
CCB Financial 13,000 672,750
Cal Fed Bancorp* 10,300 233,037
Cullen Frost Bankers 28,600 779,350
Deposit Guaranty 10,600 484,950
First Michigan Bank 8,025 182,576
Mark Twain Bancshares 13,700 506,900
USBANCORP Inc 8,900 294,256
Zions Bancorp 3,600 280,350
------------
3,434,169
------------
BIOTECHNOLOGY 2.50%
CellPro Inc* 26,000 347,750
ICOS Corp* 128,200 849,325
------------
1,197,075
------------
BROADCASTING 0.65%
Renaissance Communications* 9,000 310,500
------------
BUILDING & CONSTRUCTION RELATED 4.20%
Granite Construction 20,300 428,837
Oakwood Homes 11,800 278,775
Pulte Corp 26,500 669,125
Texas Industries 9,400 629,800
------------
2,006,537
------------
CHEMICALS 0.41%
Cytec Industries* 6,600 198,000
------------
COMPUTER RELATED 5.97%
Auspex Systems* 18,700 241,931
Boole & Babbage 10,200 247,350
<PAGE>
Comshare Inc 12,700 220,662
Continuum Co* 3,100 166,625
Gerber Scientific 12,600 185,850
Health Management Systems 29,200 883,300
Stratus Computer* 12,500 229,687
Structural Dynamics Research* 16,700 285,987
SunGard Data Systems* 9,000 367,875
Technology Solutions* 1,200 27,000
------------
2,856,267
------------
CONTAINERS 1.05%
AptarGroup Inc 7,800 259,350
West Co 10,400 244,400
------------
503,750
------------
CONTROL INSTRUMENTS 2.57%
International Rectifier* 27,000 452,250
Measurex Corp 28,100 776,262
------------
1,228,512
------------
DIVERSIFIED COMPANIES 0.83%
ACX Technologies* 22,600 398,325
------------
ELECTRICAL EQUIPMENT 0.81%
Baldor Electric 19,450 386,569
------------
ELECTRONICS 4.12%
BMC Industries 19,300 528,337
Bell Industries 27,590 462,133
DII Group* 11,000 261,250
Moog Inc Class A Ltd Voting Shrs* 13,300 279,300
Network Equipment Technologies* 13,700 181,525
Sterling Electronics 20,535 259,254
------------
1,971,799
------------
FINANCE RELATED 4.35%
CMAC Investment 8,500 487,687
Fair Issac & Co 7,600 301,150
Imperial Credit Industries 10,400 304,200
Mutual Risk Management 1 28
PHH Corp 13,200 702,900
Robert Half International* 10,000 282,500
------------
2,078,465
------------
FOOD PRODUCTS & BEVERAGES 1.17%
International Multifoods 33,700 560,262
------------
HEALTH CARE RELATED 1.70%
Universal Health Services Class B* 31,800 814,875
------------
<PAGE>
HOME FURNISHINGS 0.97%
Furniture Brands International* 18,400 209,300
La-Z Boy Chair 8,900 255,875
------------
465,175
------------
INSURANCE 5.43%
Fremont General 17,800 445,000
NAC Re 8,600 296,700
Protective Life 23,500 807,812
Selective Insurance Group 7,000 226,625
Washington National 29,700 820,463
------------
2,596,600
------------
INVESTMENT BROKERS 1.20%
Alex Brown 3,900 182,325
Raymond James Financial 18,800 392,450
------------
574,775
------------
JEWELRY 0.72%
Zale Corp* 19,900 345,762
------------
MACHINERY 2.14%
Harnischfeger Industries 8,094 250,914
IDEX Corp 7,200 216,000
NACCO Industries Class A 5,100 262,012
Regal Beloit 18,300 292,800
------------
1,021,726
------------
MANUFACTURING 2.04%
Fisher Scientific International 12,700 493,712
Foamex International* 16,800 201,600
Varlen Corp 13,310 277,846
------------
973,158
------------
MEDICAL RELATED 4.76%
ADAC Laboratories 13,200 255,750
Advanced Technology Laboratories* 9,100 293,475
Invacare Corp 17,600 523,600
Kinetic Concepts 34,800 487,200
OEC Medical Systems* 24,600 289,050
PhyCor Inc* 13,925 428,194
------------
2,277,269
------------
MEDICAL RELATED - DRUGS 0.81%
Bergen Brunswig Class A 14,900 387,400
------------
<PAGE>
METALS & MINING 2.62%
Cleveland-Cliffs Inc 13,400 492,450
Global Industrial Technologies* 14,300 243,100
Lukens Inc 11,300 235,888
Oregon Metallurgical* 7,400 177,600
Zeigler Coal Holding 7,200 105,300
------------
1,254,338
------------
MOTION PICTURES & TELEVISION 0.48%
Carmike Cinemas Class A* 8,900 228,062
------------
OIL & GAS RELATED 4.21%
Cabot Oil & Gas Class A 30,300 473,437
Camco International 12,100 391,738
Diamond Shamrock 17,300 480,075
Smith International* 8,600 288,100
Sonat Offshore Drilling 6,600 323,400
Vintage Petroleum 2,500 57,813
------------
2,014,563
------------
PAPER & PAPER PRODUCTS 1.62%
Domtar Inc 44,700 335,250
Rock-Tenn Co Class A 23,100 438,900
------------
774,150
------------
POLLUTION CONTROL RELATED 1.55%
Sanifill Inc* 5,700 241,538
US Filter* 23,100 499,538
------------
741,076
------------
PRINTING & PUBLISHING 2.19%
Graphic Industries 20,100 185,925
Media General Class A 7,900 226,138
Meredith Corp 8,400 341,250
Pulitzer Publishing 5,600 291,900
------------
1,045,213
------------
REAL ESTATE RELATED 4.32%
Beacon Properties 11,800 309,750
Duke Realty Investments 10,300 306,425
Gables Residential Trust SBI 6,900 162,150
Highwoods Properties 5,700 157,463
Liberty Property Trust SBI 9,900 196,763
Merry Land & Investment 7,300 153,300
Public Storage 20,800 444,600
Shurgard Storage Centers Class A 7,500 177,188
Wellsford Residential Property Trust SBI 7,400 160,950
------------
2,068,589
------------
<PAGE>
RECREATION RELATED 1.69%
Coachmen Industries 10,800 391,500
Grand Casinos* 7,800 146,250
Outboard Marine 17,300 270,313
------------
808,063
------------
RETAIL 6.68%
Apple South 13,800 281,175
Applebee's International 9,600 241,200
Carson Pirie Scott* 13,400 298,150
Claire's Stores 20,100 575,363
CompUSA Inc* 6,800 268,600
Gymboree Corp* 15,400 358,050
Pier 1 Imports 16,000 270,000
Ross Stores 13,300 392,350
ShowBiz Pizza Time* 9,500 138,938
Waban Inc* 19,600 372,400
------------
3,196,226
------------
SAVINGS & LOAN 1.65%
ALBANK Financial 7,660 192,458
Astoria Financial 16,000 428,000
Sovereign Bancorp 17,330 166,801
------------
787,259
------------
SCHOOLS 1.33%
DeVRY Inc* 14,600 636,925
------------
SEMICONDUCTOR EQUIPMENT 0.31%
Siliconix Inc* 8,300 149,400
------------
TELECOMMUNICATIONS 2.28%
Aspect Telecommunications* 5,300 255,725
Associated Group Class A* 6,100 149,450
Interdigital Communications* 51,400 353,375
Octel Communications* 14,200 333,700
------------
1,092,250
------------
TEXTILES & APPAREL MANUFACTURERS 2.10%
Burlington Industries* 41,700 562,950
G & K Services Class A 16,500 443,438
------------
1,006,388
------------
TOBACCO 2.12%
Universal Corp 36,500 1,012,875
------------
TRANSPORTATION 1.85%
APL Ltd 7,300 170,638
Alaska Air Group* 10,800 259,200
<PAGE>
Werner Enterprises 18,000 456,750
------------
886,588
------------
UTILITIES 4.43%
Atlantic Tele-Network* 18,000 378,000
Central Maine Power 17,700 212,400
CILCORP Inc 3,000 125,250
Commonwealth Energy Systems SBI 10,600 243,800
IES Industries 13,400 395,300
Minnesota Power & Light 12,700 350,838
ONEOK Inc 15,600 411,450
------------
2,117,038
------------
WHOLESALE 0.33%
United Stationers* 7,600 159,600
------------
TOTAL INVESTMENT
SECURITIES AT VALUE 100.00%
(Cost $47,331,143)
(Cost for Income
Tax Purposes
$47,352,849) $47,838,135
============
* Security is non-income producing.
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Statement of Assets and Liabilities
July 31, 1996
ASSETS
Investment Securities at Value
(Cost $47,331,143) $47,838,135
Receivables:
Fund Shares Sold 468,786
Dividends and Interest 40,848
Prepaid Expenses and Other Assets 25,071
------------
TOTAL ASSETS 48,372,840
------------
LIABILITIES
Payables:
Custodian 1,647,562
Distributions to Shareholders 6,013
Fund Shares Repurchased 6,633
Accrued Expenses and Other Payables 19,447
------------
TOTAL LIABILITIES 1,679,655
------------
Net Assets at Value 46,693,185
============
NET ASSETS
Paid-in Capital* 39,965,809
Accumulated Undistributed Net Investment
Income 4,778
Accumulated Undistributed Net Realized Gain
on Investment Securities 6,215,606
Net Appreciation of Investment Securities 506,992
------------
Net Assets at Value 46,693,185
============
Net Asset Value, Offering and Redemption
Price per Share 12.19
============
* The Fund has 100 million authorized shares of common stock, par value of $0.01
per share, of which 3,831,339 were outstanding at July 31, 1996.
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Statement of Operations
Year Ended July 31, 1996
INVESTMENT INCOME
INCOME
Dividends $775,309
Interest 139,811
------------
TOTAL INCOME 915,120
------------
EXPENSES
Investment Advisory Fees 409,030
Transfer Agent Fees 47,778
Administrative Fees 18,180
Custodian Fees and Expenses 21,496
Directors' Fees and Expenses 10,147
Professional Fees and Expenses 23,370
Registration Fees and Expenses 47,266
Reports to Shareholders 6,622
Other Expenses 10,887
------------
TOTAL EXPENSES 594,776
Fees and Expenses Absorbed
by Investment Adviser (2,604)
Fees and Expenses Paid Indirectly (8,286)
------------
NET EXPENSES 583,886
------------
NET INVESTMENT INCOME 331,234
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 6,672,541
Change in Net Depreciation of Investment
Securities (2,961,051)
------------
NET GAIN ON INVESTMENT SECURITIES 3,711,490
------------
Net Increase in Net Assets from Operations 4,042,724
============
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Fund
Statement of Changes in Net Assets
Year Ended July 31
---------------------------------
1996 1995
OPERATIONS
Net Investment Income $331,234 $151,017
Net Realized Gain on
Investment Securities 6,672,541 800,723
Change in Net Appreciation
(Depreciation) of Investment
Securities (2,961,051) 3,762,809
---------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 4,042,724 4,714,549
---------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (328,765) (206,316)
Net Realized Gain on
Investment Securities (1,179,375) 0
---------------------------------
TOTAL DISTRIBUTIONS (1,508,140) (206,316)
---------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 143,331,961 42,475,361
Reinvestment of Distributions 1,510,374 182,674
---------------------------------
144,842,335 42,658,035
---------------------------------
Amounts Paid for Repurchases
of Shares (140,754,802) (20,569,337)
---------------------------------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 4,087,533 22,088,698
---------------------------------
Total Increase in Net Assets 6,622,117 26,596,931
NET ASSETS
Beginning of Period 40,071,068 13,474,137
---------------------------------
End of Period (Including
Accumulated Undistributed
Net Investment Income
of $4,778 and $2,309,
respectively) 46,693,185 40,071,068
=================================
FUND SHARE TRANSACTIONS
Shares Sold 11,466,923 3,982,583
Shares Issued from Reinvestment
of Distributions 122,792 16,914
---------------------------------
11,589,715 3,999,497
<PAGE>
Shares Repurchased (11,162,000) (1,977,122)
---------------------------------
Net Increase in Fund Shares 427,715 2,022,375
=================================
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Fund
Notes to Financial Statements
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO
Diversified Funds, Inc. (the "Fund"), was incorporated in Maryland on April 2,
1993, and presently consists of the Small Company 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 liabilites 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.
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. 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.
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 July 31, 1996,
<PAGE>
24.74% qualified for the dividends received deduction available to the
Fund's corporate shareholders.
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 captital 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 nontaxable dividends, net operating losses and
expired capital loss carryforwards. As of July 31, 1996, there were no such
differences.
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, 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 July 31, 1996, Fees and Expenses Paid Indirectly
consisted of $2,080 included in Custodian Fees and Expenses and $6,206
included in Other Expenses.
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% of average net assets.
In accordance with a Sub-Advisory Agreement between IFG and INVESCO
Management & Research, Inc. ("IMR"), an affiliate of IFG, investment decisions
of the Fund are made by IMR. 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.
IFG and IMR have 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 year ended July
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 $88,678,808 and $80,714,261, respectively.
There were no purchases or sales of U.S. Government Securities.
NOTE 4 -- APPRECIATION AND DEPRECIATION. At July 31, 1996, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $4,206,129 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $3,720,843, resulting in net
appreciation of $485,286.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IMR.
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 were based on an annual rate equal to 25% of the retainer fee at the time
of retirement. As of July 1, 1996, benefits are based on an annual rate of 40%
of the retainer fee at the time of retirement.
Pension expenses for the year ended July 31, 1996, included in Directors'
Fees and Expenses in the Statement of Operations were $380. Unfunded accrued
pension costs of $196 and pension liability of $886 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
July 31, 1996, there were no such borrowings.
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
Period
Ended
Year Ended July 31 July 31
-------------------------- -------------
1996 1995 1994^
PER SHARE DATA
Net Asset Value -
Beginning of Period $11.77 $9.76 $10.00
-------------------------- -------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.08 0.05 0.06
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) 0.68 2.05 (0.28)
-------------------------- -------------
Total from Investment
Operations 0.76 2.10 (0.22)
-------------------------- -------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.08 0.09 0.02
Distributions from
Capital Gains 0.26 0.00 0.00
-------------------------- -------------
Total Distributions 0.34 0.09 0.02
-------------------------- -------------
Net Asset Value -
End of Period 12.19 11.77 9.76
========================== =============
TOTAL RETURN 6.47% 21.64% (2.21%)*
RATIOS
Net Assets - End of
Period ($000 Omitted) 46,693 40,071 13,474
Ratio of Expenses to
Average Net Assets# 1.09%@ 1.00% 1.00%~
Ratio of Net Investment
Income to Average
Net Assets# 0.61% 0.84% 1.20%~
Portfolio Turnover Rate 156% 73% 55%*
^ From December 1, 1993, commencement of operations, to July 31, 1994.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
<PAGE>
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended July 31, 1996, 1995 and for the period ended July 31, 1994. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net
assets would have been 1.09%, 1.32% and 1.64% (annualized), respectively, and
ratio of net investment income to average net assets would have been 0.61%,
0.52% and 0.56% (annualized), respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Diversified 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 Small Company Fund (constituting
INVESCO Diversified Funds, Inc., hereafter referred to as the "Fund") at July
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 July 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
/s/ Price Waterhouse LLP
- ------------------------
Denver, Colorado
August 30, 1996
<PAGE>
FAMILY OF FUNDS
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- --------------------------------------------------------------------------------
International
Latin American Growth 34 IVSLX LatinAmGr
European Small Company 37 IVECX EuroSmCo
European 56 FEURX Europ
Pacific Basin 54 FPBSX PcBas
International Growth 49 FSIGX IntlGr
Asian Growth 41 IVAGX AsianGr
- --------------------------------------------------------------------------------
Sector
Energy 50 FSTEX Enrgy
Environmental Services 59 FSEVX Envirn
Financial Services 57 FSFSX FinSvc
Gold 51 FGLDX Gold
Health Sciences 52 FHLSX HlthSc
Leisure 53 FLISX Leisur
Technology 55 FTCHX Tech
Worldwide Capital Goods 38 ISWGX WldCap
Worldwide Communications 39 ISWCX WldCom
- --------------------------------------------------------------------------------
Growth, Value
Emerging Growth 60 FIEGX Emgrth
Value Equity 46 FSEQX ValEq
Small Company 74 IDSCX DivSmCo
Dynamics 20 FIDYX Dynm
Growth 10 FLRFX Grwth
- --------------------------------------------------------------------------------
Equity-Income
Industrial Income 15 FIIIX IndInc
Utilities 58 FSTUX Util
- --------------------------------------------------------------------------------
Balanced/Multiple-Asset
Multi-Asset Allocation 70 IMAAX MulAstAl
Balanced 71 IMABX Bal
Total Return 48 FSFLX TotRtn
- --------------------------------------------------------------------------------
Bond
High Yield 31 FHYPX HiYld
Select Income 30 FBDSX SelInc
U.S. Government Securities 32 FBDGX USGvt
Intermediate Government Bond 47 FIGBX IntGov
Short-Term Bond 33 INIBX ShTrBd
- --------------------------------------------------------------------------------
Tax-Exempt
Tax-Free Long-Term Bond 35 FTIFX TxFre
Tax-Free Intermediate Bond 36 * *
- --------------------------------------------------------------------------------
Money Market
Tax-Free Money Fund 40 FFRXX N/A
Cash Reserves 25 FDSXX N/A
U.S. Government Money Fund 44 FUGXX N/A
* This fund does not meet size requirements to be assigned a ticker symbol in
newspaper listings.
For more information about any of the INVESCO Funds, including management fees
and expenses, please call us at 1-800-525-8085 for a prospectus. Read it
carefully before you invest or send money.
<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: 1-800-424-8085
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
Find us on the World Wide Web:
http://www.invesco.com
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.
