SEMIANNUAL REPORT
January 31, 1997
INVESCO
SMALL
COMPANY
FUND
A no-load fund seeking
long-term capital growth
INVESCO FUNDS
<PAGE>
Market Overview February 1997
Like the stock and bond markets, the U.S. economy has produced startling
numbers in recent years. After moderating during the third quarter 1996, the
expansion again gained steam the following three months, growing at an
annualized rate of 3.9%. Consequently, fears of reigniting inflation -- or
action from the Federal Reserve Board to stave off that threat -- have reemerged
among investors.
The moderate inflation level of about 3% represents a positive factor for
the economy. At the same time, though, the longevity of the current expansion --
over six years -- remains a cause for concern; the post-World War II average is
only four and a half years. Negative growth hasn't been experienced since the
first quarter of 1993. If the growth rate again approaches 5%, many economists
expect the Federal Reserve Board to launch a preemptive strike against
inflation, with the concomitant danger of cutting the expansion short.
Last summer, concern about the Fed and the national elections caused a
pullback in equity markets. Subsequently, with the political status quo
generally maintained vis-a-vis the president and Congress, and the economy
slowing on its own, the S&P 500 resumed its volatile hike upward.
In comparison, investors in fixed-income securities experienced a bumpier
ride in 1996. The second half of the year was smoother, as inflation fears waned
and interest rates stabilized.
1997 is a post-presidential election year, when the stock market often
drops. And, compared to historical levels, valuations for many individual stocks
appear high. Equity markets have been jumpy this winter, responding
instantaneously to the smallest clues about the economy, interest rates, or
fiscal and monetary policies. Securities markets around the globe immediately
dropped following Fed Chairman Alan Greenspan's December remark that current
stock prices may reflect "irrational exuberance."
INVESCO Small Company Fund
As the line graph illustrates, for the period from inception through
1/31/97, the value of a $10,000 investment in INVESCO Small Company Fund, plus
reinvested dividends and capital gain distributions, would have risen to
$14,645. The chart and other total return figures cited reflect the fund's
operating expenses, but the indexes do not have expenses, which would, of
course, have lowered their performance. (Of course, past performance is not a
guarantee of future results.)(1),(2)
Graph: Small Company Fund Total Return from Inception(12/93)
through 1/31/97
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 (12/93) through
1/31/97.
<PAGE>
For the six-month period ended 1/31/97, INVESCO Small Company Fund had a
total return of 15.64%, compared to a total return of 17.80% for
smaller-capitalization stocks as measured by the Russell 2000, and 24.13% for
the broader market, as represented by the S&P 500. During the last three months
ended 1/31/97, the fund's total return was 9.11%, besting the Lipper Small
Company Growth Fund's average return of 7.12%. (Lipper Analytical Services is an
independent mutual fund analyst, which tracks fund performance by total return
unadjusted for commissions. Of course, past performance is not a guarantee of
future results.)(1),(2)
Small Company Fund
Average Annual Total Return
as of 1/31/97(2)
1 year 14.72%
-----------------------------------------
5 years 12.80%
-----------------------------------------
Graph: Small Company Fund Diversification
by Value of Total Net Assets as of 1/31/97
This bar graph reflects the allocation of the Small Company 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 Cash & Equivalents
for the periods ending 7/95, 7/96, and 1/97.
Last year highlighted the volatility typically associated with small-cap
stocks, as the market return pendulum moved between extremes. Concerns over the
presidential election and possible acceleration of inflation created a flight to
quality; during the second half of 1996, money flowed out of small-cap stocks
and into familiar large-cap stocks with stable earnings. This phenomenon,
coupled with seasonal tax-loss selling at the end of the year, depressed the
small-cap market. However, January saw renewed interest in the market, as these
stocks typically have rebounded -- albeit to a smaller degree than hoped.
Within this volatile environment, stock selection has been difficult for
both growth and value investors. However, value outperformed growth in the
small-cap market in the latter half of 1996, as value stock selections are based
on fundamentals and relative valuations. This type of investing typically kept
the value investor out of market momentum stocks -- which were devastated in the
"flight to quality" last autumn.
For 1997, the fund will continue to employ a quantitative investment style
that seeks to identify companies with strong and improving fundamentals with
market capitalization between $30 million and $1 billion. We believe that stock
selectivity will remain critical for 1997.
<PAGE>
Looking Forward
Market volatility is inherent in small-cap stocks. Small-cap companies are
among the key building blocks of the American economy, and their stocks may
offer dynamic rewards for the patient investor -- but patience is critical when
investing in this particular market.
Moving into 1997, we feel that the atypical disparity of returns between
large- and small-cap stocks should diminish. As the growth rate of earnings
slows down for large-caps, they may fall out of favor with investors, sending a
flow of capital to small-cap stocks.
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 indexes 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
January 31, 1997
Description Value
- --------------------------------------------------------------------------------
Astoria Financial $1,743,300
Periphonics Corp 924,800
Measurex Corp 907,175
Wellsford Residential Property Trust SBI 860,625
CCB Financial 845,000
PHH Corp 837,375
Protective Life 824,200
Mark Twain Bancshares 816,075
CBL & Associates Properties 768,750
Renaissance Communications 754,325
Composition of holdings is subject to change.
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Statement of Investment Securities
January 31, 1997
UNAUDITED
Shares or
Principal
Description Amount Value
- --------------------------------------------------------------------------------
COMMON STOCKS 100.00%
AEROSPACE/DEFENSE 1.08%
Thiokol Corp 5,400 $ 302,400
UNC Inc* 20,400 226,950
-------------
529,350
-------------
AUTO PARTS 0.80%
Borg-Warner Automotive 9,800 390,775
-------------
AUTOMOBILES 1.04%
SPX Corp 12,500 507,812
-------------
BANKS 5.92%
CCB Financial 13,000 845,000
Cullen Frost Bankers 12,000 419,250
Deposit Guaranty 12,900 404,737
First Michigan Bank 1 29
Mark Twain Bancshares 16,200 816,075
Zions Bancorp 3,600 415,800
-------------
2,900,891
-------------
BIOTECHNOLOGY 1.57%
Bio-Rad Laboratories Class A* 5,700 182,400
Gilead Sciences* 8,300 270,787
ICOS Corp* 39,400 315,200
-------------
768,387
-------------
BROADCASTING 1.54%
Renaissance Communications* 21,100 754,325
-------------
BUILDING MATERIALS 1.74%
Centex Corp 15,500 604,500
Texas Industries 4,500 248,625
-------------
853,125
-------------
CHEMICALS 3.69%
Cytec Industries* 9,000 358,875
Dexter Corp 24,400 738,100
Ionics Inc* 4,100 205,512
Lilly Industries Class A 25,600 508,800
-------------
1,811,287
-------------
<PAGE>
COMPUTER RELATED 7.01%
American Management Systems* 19,500 426,563
Boole & Babbage 16,800 428,400
CACI International Class A* 4,700 98,700
Evans & Sutherland Computer* 12,200 305,000
Fair Issac & Co 9,900 399,712
Harbinger Corp* 6,100 245,525
Manugistics Group* 2,300 100,625
National Data 6,900 282,900
Network Appliance* 6,000 307,500
Stratus Computer* 8,900 282,575
SunGard Data Systems* 9,000 355,500
Technology Solutions* 5,300 203,388
-------------
3,436,388
-------------
CONSUMER - JEWELRY, NOVELTY & GIFT 1.06%
Oneida Ltd 11,500 199,812
Zale Corp* 19,900 318,400
-------------
518,212
-------------
CONTAINERS 0.70%
AptarGroup Inc 10,300 345,050
-------------
DISTRIBUTION - DURABLES 0.43%
MicroAge Inc* 14,400 212,400
-------------
DRUGS 1.02%
Bindley Western Industries 28,100 498,775
-------------
ELECTRIC UTILITIES 2.64%
Central Maine Power 17,700 196,912
CILCORP Inc 3,000 115,500
Commonwealth Energy Systems SBI 8,600 209,625
IES Industries 13,400 410,375
Minnesota Power & Light 12,700 363,538
-------------
1,295,950
-------------
ELECTRICAL EQUIPMENT 2.78%
Baldor Electric 22,650 580,406
Bell Industries 12,490 282,586
Methode Electronics Class A 12,200 271,450
Moog Inc Class A* 9,200 226,550
-------------
1,360,992
-------------
ELECTRONICS - INSTRUMENTS 1.89%
Periphonics Corp* 28,900 924,800
-------------
<PAGE>
ENGINEERING & CONSTRUCTION 1.84%
NVR Inc* 19,200 247,200
Oakwood Homes 8,800 180,400
Stone & Webster 14,000 476,000
-------------
903,600
-------------
FINANCIAL - DIVERSIFIED 0.81%
CMAC Investment 11,400 396,150
Mutual Risk Management 1 36
-------------
396,186
-------------
FOODS 1.44%
Earthgrains Co 4,800 223,800
International Multifoods 26,800 482,400
-------------
706,200
-------------
GAMING 0.51%
Primadonna Resorts* 11,900 249,900
-------------
GOLD & PRECIOUS METALS MINING 0.54%
Zeigler Coal Holding 10,300 263,937
-------------
HEALTHCARE DRUGS - PHARMACEUTICALS 1.01%
Barr Laboratories* 2,000 70,000
Bergen Brunswig Class A 10,600 315,350
Carter-Wallace Inc 7,400 111,000
-------------
496,350
-------------
HEALTHCARE RELATED 1.30%
ADAC Laboratories 8,000 199,000
Hooper Holmes 300 4,837
West Co 15,600 432,900
-------------
636,737
-------------
HOUSEHOLD FURNITURE & APPLIANCES 1.47%
La-Z Boy Chair 6,800 212,500
Miller (Herman) Inc 8,800 509,300
-------------
721,800
-------------
<PAGE>
INSURANCE 3.93%
Commerce Group 18,600 451,050
Orion Capital 2,600 163,800
Protective Life 20,800 824,200
Reliance Group Holdings 28,300 258,237
Selective Insurance Group 5,600 229,600
-------------
1,926,887
-------------
INVESTMENT BANK/BROKER FIRM 1.45%
Raymond James Financial 22,000 709,500
-------------
LEISURE TIME 1.67%
Carmike Cinemas Class A* 19,000 451,250
Coachmen Industries 10,800 203,850
Outboard Marine 10,000 166,250
-------------
821,350
-------------
MACHINERY 1.97%
Blount International Class A 4,500 182,812
Harnischfeger Industries 8,094 359,171
IDEX Corp 11,300 423,750
-------------
965,733
-------------
MANUFACTURING 3.22%
Fisher Scientific International 8,000 351,000
Global Industrial Technologies* 14,300 260,975
Robbins & Myers 18,100 479,650
Teleflex Inc 10,300 486,675
-------------
1,578,300
-------------
MEDICAL EQUIPMENT & DEVICES 3.45%
Advanced Technology Laboratories* 9,100 303,713
Invacare Corp 8,200 221,400
Kinetic Concepts 21,300 266,250
OEC Medical Systems* 12,000 207,000
Safeskin Corp* 17,800 427,200
Sofamor/Danek Group* 6,500 268,125
-------------
1,693,688
-------------
<PAGE>
METALS & MINING 1.19%
Cleveland-Cliffs Inc 13,400 582,900
-------------
NATURAL GAS 0.94%
ONEOK Inc 15,600 462,150
-------------
OFFICE EQUIPMENT & SUPPLIES 0.70%
Symbol Technologies* 6,300 344,925
-------------
OIL & GAS RELATED 3.33%
Cabot Oil & Gas Class A 25,200 459,900
Camco International 12,100 579,288
Parker & Parsley Petroleum 8,500 296,438
Ultramar Diamond Shamrock 10,098 296,629
-------------
1,632,255
-------------
PAPER & FOREST PRODUCTS 0.73%
Fibreboard Corp* 10,300 356,638
-------------
PERSONAL CARE 1.15%
Rexall Sundown* 17,700 566,400
-------------
PHYSICIAN PRACTICE MANAGEMENT 1.44%
Universal Health Services Class B* 24,400 707,600
-------------
POLLUTION CONTROL 0.02%
Thermo Ecotek* 600 9,225
-------------
PUBLISHING 1.90%
Media General Class A 7,900 248,850
Meredith Corp 8,400 431,550
Pulitzer Publishing 5,266 250,793
-------------
931,193
-------------
REAL ESTATE INVESTMENT TRUST 10.35%
Beacon Properties 11,800 421,850
CBL & Associates Properties 30,000 768,750
Duke Realty Investments 10,300 408,138
Gables Residential Trust SBI 6,900 183,713
Highwoods Properties 5,700 199,500
Koger Equity* 19,500 348,563
Liberty Property Trust SBI 9,900 254,925
MGI Properties 11,800 256,650
Merry Land & Investment 7,300 162,425
Omega Healthcare Investors 5,700 179,550
Patriot American Hospitality 4,500 211,500
Public Storage 20,800 608,400
Shurgard Storage Centers Class A 7,500 209,063
Wellsford Residential Property Trust SBI 30,600 860,625
-------------
5,073,652
-------------
<PAGE>
RESTAURANTS 0.54%
Applebee's International 4,700 126,900
CKE Restaurants 6,550 136,731
-------------
263,631
-------------
RETAIL 2.52%
Borders Group* 6,200 276,675
Carson Pirie Scott* 10,200 272,850
Ross Stores 7,900 323,900
Shopko Stores 22,800 361,950
-------------
1,235,375
-------------
SAVINGS & LOAN COMPANIES 3.59%
Astoria Financial 44,700 1,743,300
California Federal Bank SCLP* 1,030 17,381
-------------
1,760,681
-------------
SERVICES - ADVERTISING/MARKETING 0.52%
True North Communications 11,600 253,750
-------------
SERVICES - COMMERCIAL & CONSUMER 4.38%
DeVRY Inc* 17,000 446,250
G & K Services Class A 16,500 528,000
Kinder-Care Learning Centers* 17,900 333,388
PHH Corp 17,400 837,375
-------------
2,145,013
-------------
SERVICES - COMPUTER SYSTEMS 2.84%
Gerber Scientific 34,100 485,925
Measurex Corp 26,200 907,175
-------------
1,393,100
-------------
SPECIALTY PRINTING 0.40%
Graphic Industries 20,100 195,975
-------------
TELECOMMUNICATIONS -
CELLULAR/WIRELESS 0.66%
Centennial Cellular Class A* 27,100 321,813
-------------
TEXTILE - APPAREL MANUFACTURING 1.41%
Burlington Industries* 22,000 264,000
Kellwood Co 11,100 246,975
Nautica Enterprises* 7,700 180,950
-------------
691,925
-------------
<PAGE>
TRANSPORTATION 0.36%
APL Ltd 7,300 175,200
-------------
TRUCKERS 1.19%
Werner Enterprises 32,400 583,200
-------------
UTILITIES - WATER 0.32%
E'town Corp 5,000 155,625
-------------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $43,480,161)
(Cost for Income Tax Purposes
$43,490,825) $ 49,020,913
=============
* Security is non-income producing.
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Statement of Assets and Liabilities
January 31, 1997
UNAUDITED
ASSETS
Investment Securities at Value
(Cost $43,480,161) $ 49,020,913
Receivables:
Investment Securities Sold 9,921,986
Fund Shares Sold 196,432
Dividends and Interest 38,220
Prepaid Expenses and Other Assets 48,007
-------------
TOTAL ASSETS 59,225,558
-------------
LIABILITIES
Payables:
Custodian 9,147,436
Investment Securities Purchased 57,204
Fund Shares Repurchased 652,145
Accrued Expenses and Other Payables 19,808
-------------
TOTAL LIABILITIES 9,876,593
-------------
Net Assets at Value $ 49,348,965
=============
NET ASSETS
Paid-in Capital* $ 40,741,750
Accumulated Undistributed Net
Investment Income 191,257
Accumulated Undistributed Net Realized Gain
on Investment Securities, Foreign Currency
Transactions and Futures Contracts 2,875,701
Net Appreciation of Investment Securities,
Foreign Currency Transactions and
Futures Contracts 5,540,257
-------------
Net Assets at Value $ 49,348,965
=============
Net Asset Value, Offering and Redemption
Price per Share $12.68
=============
* The Fund has 100 million authorized shares of common stock, par value of $0.01
per share, of which 3,891,104 were outstanding at January 31, 1997.
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Statement of Operations
Six Months Ended January 31, 1997
UNAUDITED
INVESTMENT INCOME
INCOME
Dividends $ 407,296
Interest 197,270
Foreign Taxes Withheld (345)
-------------
TOTAL INCOME 604,221
-------------
EXPENSES
Investment Advisory Fees 220,716
Transfer Agent Fees 56,013
Administrative Fees 9,468
Custodian Fees and Expenses 12,768
Directors' Fees and Expenses 4,770
Professional Fees and Expenses 11,233
Registration Fees and Expenses 27,081
Reports to Shareholders 5,467
Other Expenses 2,107
-------------
TOTAL EXPENSES 349,623
Fees and Expenses Absorbed
by Investment Adviser (1,881)
-------------
NET EXPENSES 347,742
-------------
NET INVESTMENT INCOME 256,479
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on:
Investment Securities and Foreign
Currency Transactions 2,301,294
Futures Contracts 810,630
-------------
Total Net Realized Gain 3,111,924
-------------
Change in Net Appreciation (Depreciation) of:
Investment Securities and Foreign Currency
Transactions 5,033,760
Futures Contracts (495)
-------------
Total Net Appreciation 5,033,265
-------------
NET GAIN ON INVESTMENT SECURITIES 8,145,189
-------------
Net Increase in Net Assets from Operations $ 8,401,668
=============
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Statement of Changes in Net Assets
Six Months Year
Ended Ended
January 31 July 31
-------------- --------------
1997 1996
UNAUDITED
OPERATIONS
Net Investment Income $ 256,479 $ 331,234
Net Realized Gain on Investment
Securities, Foreign Currency
Transactions and Futures
Contracts 3,111,924 6,672,541
Change in Net Appreciation
(Depreciation) of Investment
Securities, Foreign Currency
Transactions and Futures Contracts 5,033,265 (2,961,051)
-------------- --------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 8,401,668 4,042,724
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (70,000) (328,765)
Net Realized Gain on
Investment Securities (6,451,829) (1,179,375)
-------------- --------------
TOTAL DISTRIBUTIONS (6,521,829) (1,508,140)
-------------- --------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 156,277,502 143,331,961
Reinvestment of Distributions 6,488,675 1,510,374
-------------- --------------
162,766,177 144,842,335
Amounts Paid for Repurchases
of Shares (161,990,236) (140,754,802)
-------------- --------------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 775,941 4,087,533
-------------- --------------
Total Increase in Net Assets 2,655,780 6,622,117
NET ASSETS
Beginning of Period 46,693,185 40,071,068
-------------- --------------
End of Period (Including
Accumulated Undistributed Net
Investment Income of $191,257
and $4,778, respectively) $ 49,348,965 $ 46,693,185
============== ==============
<PAGE>
FUND SHARE TRANSACTIONS
Shares Sold 12,192,029 11,466,923
Shares Issued from Reinvestment
of Distributions 531,761 122,792
-------------- --------------
12,723,790 11,589,715
Shares Repurchased (12,664,025) (11,162,000)
-------------- --------------
Net Increase in Fund Shares 59,765 427,715
============== ==============
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Notes to Financial Statements
UNAUDITED
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO
Diversified Funds, Inc. (the "Fund"), was incorporated in Maryland 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. Effective February 1, 1997, the Fund's name will change to INVESCO
Diversified Funds, Inc. -- Small Company Value Fund.
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
by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates
as quoted by one or more banks or dealers on the date of valuation. The
cost of securities is translated into U.S. dollars at the rates of exchange
prevailing when such securities were acquired. Income and expenses are
translated into U.S. dollars at rates of exchange prevailing when accrued.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex dividend date. 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. Cost is determined
on the specific identification basis.
<PAGE>
The Fund may have elements of risk due to concentrated investments in
foreign issuers located in a specific country. Such concentrations may
subject the Fund to additional risks resulting from future political or
economic conditions and/or possible impositions of adverse foreign
governmental laws or currency exchange restrictions. Net realized and
unrealized gain or loss from investments 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.
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.
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.
E. 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
Liablities.
F. FUTURES CONTRACTS - The Fund may enter into futures contracts for hedging or
other non-speculative purposes. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as may be required
by the exchanges on which the transaction is affected. Pursuant to the
contracts, the Fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts
or payments are known as "variation margin" and are recorded by the Fund as
<PAGE>
variation margin receivable or payable on futures contracts. During the
period the futures contracts are open, changes in the value of the contracts
are recognized on a daily basis to reflect the market value of the contracts
at the end of each day's trading and are recorded as unrealized gain or
loss. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The Fund's use of futures
contracts may subject it to certain risks as a result of unanticipated
movements in the market. A lack of correlation between the value of an
instrument underlying a futures contract and the asset being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and result in losses. In addition, there can be no assurance
that a liquid secondary market will exist for any contract purchased or
sold.
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 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.
IFG and IMR have 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 six months ended
January 31, 1997, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were $29,357,628 and $35,509,924, respectively.
There were no purchases or sales of U.S. Government securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At January 31, 1997, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $6,800,793 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $1,270,704, resulting in net
appreciation of $5,530,089.
NOTE 5 - TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. 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 are based on an annual rate of 40% of the retainer fee at the time of
retirement.
<PAGE>
Pension expenses for the six months ended January 31, 1997, included in
Directors' Fees and Expenses in the Statement of Operations were $388. Unfunded
accrued pension costs of $911 and pension liability of $1,989 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. At January 31, 1997, there
were no such borrowings.
Other Information
UNAUDITED
On January 31, 1997, a special meeting of the shareholders of the Fund was held
at which the eleven directors identified below were elected, the selection of
Price Waterhouse LLP as independent accountants (Proposal 1), the approval of a
new investment advisory agreement with INVESCO Funds Group, Inc. ("IFG"),
(Proposal 2), and a new sub-advisory agreement between IFG and INVESCO
Management & Research, Inc. (Proposal 3) was ratified. The following is a report
of the votes cast:
Withheld/
Nominee/Proposal For Against Abstain Total
- ---------------------------------------------------------------------------
Charles W. Brady 2,864,254 0 20,816 2,885,070
Dan J. Hesser 2,864,254 0 20,816 2,885,070
Fred A. Deering 2,850,684 0 34,386 2,885,070
Victor L. Andrews 2,850,784 0 34,286 2,885,070
Bob R. Baker 2,864,254 0 20,816 2,885,070
Lawrence H. Budner 2,864,254 0 20,816 2,885,070
Daniel D. Chabris 2,850,769 0 34,301 2,885,070
A.D. Frazier, Jr. 2,864,254 0 20,816 2,885,070
Hubert L. Harris, Jr. 2,864,254 0 20,816 2,885,070
Kenneth T. King 2,850,784 0 34,286 2,885,070
John W. McIntyre 2,850,784 0 34,286 2,885,070
Proposal No. 1 2,842,333 24,712 18,024 2,885,069
Proposal No. 2 2,834,093 23,852 27,123 2,885,068
Proposal No. 3 2,834,073 20,601 30,395 2,885,069
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Fund
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
Six Months Period
Ended Ended
January 31 Year Ended July 31 July 31
---------- --------------------- ---------
1997 1996 1995 1994^
UNAUDITED
PER SHARE DATA
Net Asset Value -
Beginning of Period $ 12.19 $ 11.77 $ 9.76 $ 10.00
---------- --------------------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.06 0.08 0.05 0.06
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) 1.79 0.68 2.05 (0.28)
---------- --------------------- ---------
Total from Investment
Operations 1.85 0.76 2.10 (0.22)
---------- --------------------- ---------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.01 0.08 0.09 0.02
Distributions from
Capital Gains 1.35 0.26 0.00 0.00
---------- --------------------- ---------
Total Distributions 1.36 0.34 0.09 0.02
---------- --------------------- ---------
Net Asset Value -
End of Period $ 12.68 $ 12.19 $ 11.77 $ 9.76
========== ===================== =========
TOTAL RETURN 15.64%* 6.47% 21.64% (2.21%)*
RATIOS
Net Assets -
End of Period
($000 Omitted) 49,349 46,693 40,071 13,474
Ratio of Expenses to
Average Net Assets# 0.60%* 1.09%@ 1.00% 1.00%~
Ratio of Net Investment
Income to Average
Net Assets# 0.44%* 0.61% 0.84% 1.20%~
Portfolio Turnover Rate 59%* 156% 73% 55%*
Average Commission
Rate Paid^^ 0.0568* - - -
<PAGE>
^ 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.
# Various expenses of the Fund were voluntarily absorbed by IFG and IMR for the
six months ended January 31, 1997, for the years ended July 31, 1996 and 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
0.60% (not annualized), 1.09%, 1.32% and 1.64% (annualized), respectively, and
ratio of net investment income to average net assets would have been 0.44% (not
annualized), 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 expenses offset arrangements.
~ Annualized
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold which is required to be disclosed for
the fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
INVESCO FUNDS
We're easy to stay in touch with:
Investor Services Representatives,
1-800-525-8085
PAL(R), your Personal Account Line,
1-800-424-8085
On the World Wide Web:
http://www.invesco.com
Denver Investor Centers:
Cherry Creek, 155-B Fillmore Street;
Denver Tech Center, 7800 E. Union
Avenue, Lobby Level
INVESCO Funds Group, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied by a current prospectus.
