ANNUAL REPORT
July 31, 1997
INVESCO
SMALL
COMPANY
VALUE FUND
(effective 2/1/97, INVESCO Small Company Fund
changed its name to
INVESCO Small Company Value Fund)
A no-load fund seeking
long-term capital growth
INVESCO FUNDS
<PAGE>
MARKET OVERVIEW AUGUST 1997
We are currently in the greatest bull market of all time, and wealth has
been created on a scale that has never been seen before. The strength and
longevity of this market have surprised even the staunchest market advocates. A
preemptive strike against inflation by the Federal Reserve Board in March -- a
25 basis point increase in the Fed Fund's Rate -- produced a pullback in the
stock market. However, since that minor correction several large-capitalization
stock indexes have produced approximately 15% to 20% returns.
Recently, however, volatility has crept back into the stock markets --
dampening investment returns. This increased volatility can be attributed to
investor nervousness about inflation and an overheating economy. Consequently,
day-to-day swings in equity prices remain severe, and may continue in the near
future.
Nonetheless, it's worth noting that:
o The Dow Jones Industrial Average (an index composed of 30 domestic
large-capitalization stocks) has doubled in 30 months for only the fifth time
this century, and only the second time in 62 years.
o The broad market has had 18 consecutive quarters in which companies have
reported significantly more positive than negative earnings surprises.
o The wealth created by the domestic stock market in the last 10 years is
the largest in history.
The driving force behind the strength of the market during the last 10 years
has been low inflation, strong economic growth, and increased worker
productivity. These factors have led to above-average increases in corporate
profits and earnings, sending stock prices higher. Meanwhile, prices across the
economy (as measured by the Gross Domestic Product price deflator) rose only
1.8% in 1996 -- the smallest gain since 1964. Currently, the inflation rate for
the U.S. economy is at 2.2%, and producer prices actually declined over the
first seven months in 1997.
Gains in worker productivity have helped curb inflation. Over the last 10
years, corporate restructuring, downsizing, and investments in technology have
increased the efficiency of American companies and workers. These gains have
outpaced wage increases. Coupled with increased international competition,
improved productivity has put downward pressure on prices -- which is beneficial
for the economy as it stimulates consumer demand.
As a result, the U.S. economy has re-established itself as the global
leader. In turn, the demand for skilled labor has risen, and unemployment in
July 1997 was at 4.8% (the lowest level since 1973). Some naysayers suggest that
the tight labor market will eventually lead to increased wages and inflation,
which may have negative consequences for corporate stock prices.
Within this environment, investors continue to favor the liquidity and
predictability of earnings associated with large-capitalization stocks. However,
the performance gap between large- and small-cap stocks is narrowing, as it
appears investors are starting to concentrate on the value associated with
small-cap stocks.
This is a good time for shareholders to re-evaluate their expectations.
Historically speaking, markets do not return 25% every year. A long-run average
return on equities of 10% to 11% is more realistic.
<PAGE>
INVESCO SMALL COMPANY
VALUE FUND
As the line graph illustrates, for the period from inception (12/93) through
7/31/97, the value of a $10,000 investment in INVESCO Small Company Value Fund,
plus reinvested dividends and capital gain distributions, would have risen to
$17,347. 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. (Of course, past performance is not a
guarantee of future results.)(1)(2)
For the one-year period ended 7/31/97, INVESCO Small Company Value Fund had
a total return of 36.97%, compared to a total return of 32.70% for
smaller-capitalization stocks as measured by the Russell 2000. The fund's
one-year return as of the same date also beat the Lipper Small Company Growth
Fund's average one-year return of 31.69%. (Lipper Analytical Services, Inc., 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 Value Fund
Average Annual Total Return
as of 7/31/97 (2)
---------------------------
1 Year 36.97%
---------------------------
Since Inception 16.21%
---------------------------
The last year proved to be a difficult market for small-caps, as investors
continued to focus on the strength, liquidity, and stability of earnings
associated with large-cap stocks. This fascination with blue chips caused
small-cap stocks to underperform the broad market. However, the fund's strong
relative performance was produced by staying true to our disciplined
quantitative investment strategy.
Our value-based approach seeks to identify companies that are experiencing
strong and improving fundamentals. These companies typically are selling at
prices below their intrinsic value. During the last year, this philosophy kept
the fund away from market momentum stocks that were devastated by the market
correction in the spring. Instead, the fund's quantitative model produced
holdings like Minnesota Power & Light, and Coors (Adolph) Co. Both of these
companies have improving fundamentals and were selling at attractive valuation
levels when purchased.
Graph:
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Value 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 7/31/97.
<PAGE>
LOOKING FORWARD
Fund management continues to believe that the small-cap stock market
represents strong long-term opportunities for investors. This market is
currently in a period of underperformance compared to the broad market. As
earnings growth rates slow for large-cap stocks, they may fall out-of-favor with
investors, which could produce a flow of capital into small-caps. If this
happens, we may enter into a long period where small-cap stocks outperform
large-caps.
FUND MANAGEMENT
INVESCO Small Company Value 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 Russell 2000 is an unmanaged index of common stocks considered
representative of the smaller-capitalization stock market.
(2)Total return assumes reinvestment of dividends and capital gain distributions
for the periods indicated. Past performance is not a guarantee of future
results. Investment return and principal value will fluctuate so that, when
redeemed, an investor's shares may be worth more or less than when purchased.
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
TAX-EXEMPT FUNDS
36 Tax-Free Intermediate Bond
35 Tax-Free Long-Term Bond
INCOME FUNDS
33 Short-Term Bond
32 U.S. Government Securities
47 Intermediate Government Bond
30 Select Income
31 High Yield
GROWTH & INCOME FUND
71 Balanced
70 Multi-Asset Allocation
48 Total Return
15 Industrial Income
46 Value Equity
CAPITAL APPRECIATION FUNDS
10 Growth
20 Dynamics
74 Small Company Value
60 Small Company Growth
<PAGE>
SECTOR FUNDS
50 Energy
59 Environmental Services
57 Financial Services
51 Gold
52 Health Sciences
53 Leisure
42 Realty
55 Technology
58 Utilities
38 Worldwide Capital Goods
39 Worldwide Communications
INTERNATIONAL FUNDS
49 International Growth
41 Asian Growth
56 European
37 European Small Company
34 Latin American Growth
54 Pacific Basin
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 Diversified Funds, Inc. - Small Company Value Fund
TEN LARGEST COMMON STOCK HOLDINGS
July 31, 1997
Description Value
- --------------------------------------------------------------------------------
Centex Corp $886,425
Stratus Computer 735,750
Coors (Adolph) Co Class B 733,223
Computer Task Group 691,075
CBL & Associates Properties 680,850
Fuller (H B) Co 650,475
Aeroquip-Vickers Inc 646,787
Dexter Corp 633,019
Frontier Insurance Group 620,631
Technitrol Inc 609,600
Composition of holdings is subject to change.
----------------------------
INVESCO Diversified Funds, Inc - Small Company Value Fund
STATEMENT OF INVESTMENT SECURITIES
July 31,1997
Shares or
Principal
Description Amount Value
- --------------------------------------------------------------------------------
COMMON STOCKS 85.08%
AEROSPACE & DEFENSE 0.60%
Thiokol Corp 3,500 $ 260,094
UNC Inc* 6,800 98,600
------------
358,694
------------
AIR FREIGHT 0.77%
Yellow Corp* 16,900 456,300
------------
AIRLINES 0.68%
Airborne Freight 5,100 250,219
Expeditors International of Washington 4,100 155,287
------------
405,506
------------
AUTO PARTS 2.54%
Borg-Warner Automotive 6,500 362,375
Detroit Diesel* 21,000 546,000
MascoTech Inc 28,200 602,775
------------
1,511,150
------------
<PAGE>
BANKS 5.54%
ALBANK Financial 9,800 379,750
CCB Financial 5,200 432,900
Cullen Frost Bankers 6,800 317,900
Deposit Guaranty 12,900 422,475
First Michigan Bank 10,601 345,863
First Midwest Bancorp 4,600 161,000
Imperial Bancorp* 11,200 345,800
Magna Group 12,000 442,500
Provident Bankshares 6,600 314,325
US Trust 2,600 136,825
------------
3,299,338
------------
BEVERAGES 1.23%
Coors (Adolph) Co Class B 23,300 733,223
------------
BIOTECHNOLOGY 0.27%
Bio-Rad Laboratories Class A* 5,700 161,737
------------
BUILDING MATERIALS 1.71%
Centex Corp 15,900 886,425
Lone Star Industries 2,500 132,500
------------
1,018,925
------------
CABLE 0.75%
Cablevision Systems Class A* 7,500 445,312
------------
CHEMICALS 2.57%
Dexter Corp 15,900 633,019
Fuller (H B) Co 12,600 650,475
Lilly Industries Class A 11,100 247,669
------------
1,531,163
------------
COMMUNICATIONS -
EQUIPMENT & MANUFACTURING 0.97%
Boston Technology* 8,000 212,500
Comverse Technology* 7,500 365,625
------------
578,125
------------
COMPUTER RELATED 6.00%
Acxiom Corp* 10,900 216,637
Aspen Technology* 4,200 175,350
BancTec Inc* 18,550 453,316
Boole & Babbage* 16,800 436,800
CACI International Class A* 7,700 110,206
Computer Task Group 15,400 691,075
Data General* 5,300 159,994
<PAGE>
Hyperion Software* 8,300 223,063
Keane Inc* 1,500 91,688
Network Appliance* 3,400 148,325
Stratus Computer* 13,500 735,750
Structural Dynamics Research* 4,800 132,000
Transaction System Architects Class A* 100 3,700
------------
3,577,904
------------
CONTAINERS 0.44%
AptarGroup Inc 5,100 259,462
------------
DISTRIBUTION 0.72%
BJ's Wholesale Club* 4,300 127,387
Richfood Holdings 12,700 304,800
------------
432,187
------------
ELECTRIC UTILITIES 2.55%
Central Maine Power 17,700 238,950
CILCORP Inc 3,000 125,812
Commonwealth Energy Systems SBI 14,000 357,875
IES Industries 13,400 410,375
Minnesota Power & Light 11,800 387,925
------------
1,520,937
------------
ELECTRICAL EQUIPMENT 3.77%
Baldor Electric 11,150 348,437
Berg Electronics* 10,200 410,550
Kent Electronics* 4,400 171,600
Methode Electronics Class A 7,400 153,550
Moog Inc Class A* 7,800 249,600
Rexel Inc* 16,800 306,600
Technitrol Inc 19,200 609,600
------------
2,249,937
------------
ELECTRONICS 0.57%
Fluke Corp 2,500 135,625
Southern Electronics* 13,400 204,350
------------
339,975
------------
ELECTRONICS - SEMICONDUCTOR 2.01%
Burr-Brown Corp* 4,500 156,656
Dallas Semiconductor 12,500 488,281
Unitrode Corp* 6,700 398,231
Zilog Inc* 6,300 152,775
------------
1,195,943
------------
<PAGE>
ENGINEERING & CONSTRUCTION 1.21%
Pulte Corp 9,100 371,394
Stone & Webster 7,500 352,500
------------
723,894
------------
FINANCIAL 0.04%
Advest Group 1,000 23,062
------------
FOODS 1.26%
Earthgrains Co 12,000 439,500
Smithfield Foods* 6,300 313,425
------------
752,925
------------
HEALTH CARE DRUGS - PHARMACEUTICALS 2.46%
Agouron Pharmaceuticals* 2,300 220,225
AmeriSource Health Class A* 6,100 286,700
Amylin Pharmaceuticals* 13,300 174,562
Bindley Western Industries 10,100 236,719
Faulding Inc* 11,400 143,212
ICN Pharmaceuticals 6,200 211,963
Perrigo Co* 14,800 192,400
------------
1,465,781
------------
HEALTH CARE RELATED 6.40%
ADAC Laboratories 10,000 195,000
ATL Ultrasound* 5,100 205,275
Acuson Corp* 6,000 157,875
Ballard Medical Products 6,600 139,837
Datascope Corp* 23,100 503,869
Hooper Holmes 13,400 365,150
Integrated Health Services 6,900 235,463
Invacare Corp 8,200 173,225
NovaCare Inc* 13,300 172,069
OEC Medical Systems* 3,100 53,088
Tecnol Medical Products* 18,000 405,000
TheraTech Inc* 15,800 181,700
Trigon Healthcare* 13,100 311,944
Universal Health Services Class B* 8,400 341,250
West Co 12,700 373,063
------------
3,813,808
------------
HOMEBUILDING 0.29%
Nortek Inc* 7,100 174,394
------------
<PAGE>
HOUSEHOLD FURNITURE & APPLIANCES 1.24%
Ethan Allen Interiors 3,200 169,600
Furniture Brands International* 20,800 427,700
La-Z-Boy Inc 3,700 138,981
------------
736,281
------------
HOUSEWARES 0.13%
Oneida Ltd 2,600 76,700
------------
INSURANCE 5.97%
American Bankers Insurance Group 2,700 182,756
American Heritage Life Investment 4,300 163,400
Delphi Financial Group Class A* 11,564 442,323
Fremont General 9,600 410,400
Frontier Insurance Group 19,900 620,631
Guarantee Life 5,500 141,625
Horace Mann Educators 6,000 324,375
Mutual Risk Management 1 49
NAC Re 9,400 455,313
Orion Capital 8,400 351,225
Reliance Group Holdings 10,800 141,075
Vesta Insurance Group 6,100 324,825
------------
3,557,997
------------
INVESTMENT BANK/BROKER FIRM 0.73%
Quick & Reilly Group 7,400 194,250
Raymond James Financial 8,300 239,144
------------
433,394
------------
IRON & STEEL 0.23%
National Steel Class B* 8,900 136,281
------------
LEISURE TIME 0.67%
Carmike Cinemas Class A* 12,700 401,637
------------
LODGING - HOTELS 0.64%
Bristol Hotel* 14,250 382,078
------------
MACHINERY 2.47%
Aeroquip-Vickers Inc 11,800 646,787
Chart Industries 8,700 154,425
IDEX Corp 11,200 393,400
Manitowoc Co 7,200 277,200
------------
1,471,812
------------
<PAGE>
MANUFACTURING 2.32%
Aztec Manufacturing 10,500 177,844
Cognex Corp* 6,300 214,200
Dionex Corp* 2,800 127,750
Fisher Scientific International 8,000 387,500
Global Industrial Technologies* 6,700 126,881
Robbins & Myers 5,900 203,550
Scotsman Industries 5,400 146,475
------------
1,384,200
------------
METALS MINING 0.63%
Cleveland-Cliffs Inc 8,600 374,100
------------
NATURAL GAS 0.92%
ONEOK Inc 15,600 546,000
------------
OIL & GAS RELATED 3.85%
Cabot Oil & Gas Class A 14,200 291,987
Camco International 4,000 258,500
HS Resources* 13,700 191,800
Newfield Exploration* 15,900 381,600
Newpark Resources* 10,800 373,275
Tesoro Petroleum* 4,000 62,250
Varco International* 9,100 352,056
Vintage Petroleum 10,600 380,938
------------
2,292,406
------------
PERSONAL CARE 0.28%
Rexall Sundown* 4,600 164,450
------------
POLLUTION CONTROL 0.57%
Culligan Water Technologies* 8,000 338,000
------------
PUBLISHING 0.74%
McClatchy Newspapers Class A 5,100 172,763
Pulitzer Publishing 5,266 269,883
------------
442,646
------------
REAL ESTATE INVESTMENT TRUST 4.84%
Beacon Properties 6,600 241,725
CBL & Associates Properties 26,700 680,850
Duke Realty Investments 5,400 239,963
Gables Residential Trust SBI 3,000 80,063
Koger Equity 7,500 145,781
Liberty Property Trust SBI 9,900 261,113
MGI Properties 11,800 260,338
<PAGE>
Omega Healthcare Investors 5,700 186,675
Patriot American Hospitality 8,999 224,415
Public Storage 10,500 311,719
Shurgard Storage Centers Class A 8,900 251,981
------------
2,884,623
------------
RESTAURANTS 1.07%
Brinker International* 15,400 241,587
Consolidated Products* 8,200 146,062
ShowBiz Pizza Time* 10,900 252,063
------------
639,712
------------
RETAIL 2.97%
Ames Department Stores* 12,600 184,275
Carson Pirie Scott* 4,700 155,981
Cash America International 20,100 227,381
Homebase Inc* 4,300 37,625
Lands' End* 16,600 491,775
Pier 1 Imports 21,450 378,056
Shopko Stores 10,200 294,525
------------
1,769,618
------------
SAVINGS & LOAN 2.24%
Commercial Federal 7,100 283,112
FirstFed Financial* 5,500 189,750
ONBANCorp Inc 6,700 339,188
Sovereign Bancorp 22,800 361,239
St Paul Bancorp 6,700 159,544
------------
1,332,833
------------
SERVICES 4.02%
Caribiner International* 7,400 269,175
Catalina Marketing* 2,300 98,037
Computer Management Sciences* 3,900 77,025
DeVRY Inc* 16,800 493,500
G&K Services Class A 4,700 159,212
Information Resources* 10,200 153,638
Norrell Corp 13,500 426,938
Sotheby's Holdings Class A 15,900 286,200
True North Communications 17,500 435,313
------------
2,399,038
------------
<PAGE>
TELECOMMUNICATIONS -
CELLULAR & WIRELESS 0.67%
Centennial Cellular Class A* 15,900 238,500
CommNet Cellular* 4,600 160,425
------------
398,925
------------
TEXTILE - APPAREL
MANUFACTURING 1.04%
Burlington Industries* 22,000 284,625
Galey & Lord Inc* 7,500 126,562
Interface Inc Class A 7,600 209,950
------------
621,137
------------
TOBACCO 0.69%
Standard Commercial* 25,466 420,189
------------
TRUCKERS 0.53%
Werner Enterprises 14,600 313,900
------------
UTILITIES WATER 0.27%
E'town Corp 5,000 160,625
------------
TOTAL COMMON STOCKS
(Cost $43,859,686) 50,708,264
------------
SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS 14.92%
Repurchase Agreement with State Street
Bank & Trust Co dated 7/31/1997
due 8/1/1997
at 5.670%, repurchased at
$8,896,401 (Collateralized by
US Treasury Bonds due 6/30/2001
at 6.625%, value $9,126,038)
(Cost $8,895,000) 8,895,000 8,895,000
------------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $52,754,686) (Cost for Income
Tax Purposes $52,766,699) 59,603,264
============
* Security is non-income producing.
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Value Fund
Statement of Assets and Liabilities
July 31, 1997
ASSETS
Investment Securities at Value
(Cost $52,754,686)~ $ 59,603,264
Cash 177,456
Receivables:
Investment Securities Sold 1,439,104
Fund Shares Sold 95,212
Dividends and Interest 25,239
Prepaid Expenses 27,102
-------------
TOTAL ASSETS 61,367,377
-------------
LIABILITIES
Payables:
Distributions to Shareholders 17,686
Investment Securities Purchased 2,186,961
Fund Shares Repurchased 592,722
Accrued Expenses 21,055
-------------
TOTAL LIABILITIES 2,818,424
-------------
Net Assets at Value 58,548,953
=============
NET ASSETS
Paid-in Capital* 42,683,212
Accumulated Undistributed Net Investment
Income 10,517
Accumulated Undistributed Net Realized Gain
on Investment Securities, Foreign Currency
Transactions and Futures Contracts 9,006,646
Net Appreciation of Investment Securities
and Foreign Currency Transactions 6,848,578
-------------
Net Assets at Value 58,548,953
=============
Net Asset Value, Offering and Redemption
Price per Share 14.94
=============
~ Investment securities at cost and value at July 31, 1997 include a repurchase
agreement of $8,895,000.
* The Fund has 100 million authorized shares of common stock, par value of $0.01
per share, of which 3,918,379 were outstanding at July 31, 1997.
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Value Fund
STATEMENT OF OPERATIONS
Year Ended July 31, 1997
INVESTMENT INCOME
INCOME
Dividends $ 731,482
Interest 271,972
Foreign Taxes Withheld (345)
-------------
TOTAL INCOME 1,003,109
-------------
EXPENSES
Investment Advisory Fees 375,830
Transfer Agent Fees 131,681
Administrative Fees 17,517
Custodian Fees and Expenses 20,416
Directors' Fees and Expenses 9,745
Interest Expense 20,523
Professional Fees and Expenses 21,087
Registration Fees and Expenses 59,409
Reports to Shareholders 17,479
Other Expenses 4,724
-------------
TOTAL EXPENSES 678,411
Fees and Expenses Absorbed
by Investment Adviser (50,918)
-------------
NET EXPENSES 627,493
-------------
NET INVESTMENT INCOME 375,616
-------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT SECURITIES
Net Realized Gain on:
Investment Securities and Foreign Currency
Transactions 8,443,235
Futures Contracts 810,135
-------------
Total Net Realized Gain 9,253,370
-------------
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 6,341,586
-------------
NET GAIN ON INVESTMENT SECURITIES 15,594,956
-------------
Net Increase in Net Assets from Operations 15,970,572
=============
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. - Small Company Value Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended July 31
--------------------------------
1997 1996
OPERATIONS
Net Investment Income $ 375,616 $ 331,234
Net Realized Gain on Investment
Securities, Foreign Currency Transactions
and Futures Contracts 9,253,370 6,672,541
Change in Net Appreciation of Investment
Securities and Foreign Currency
Transactions 6,341,586 (2,961,051)
------------ -------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 15,970,572 4,042,724
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (380,682) (328,765)
Net Realized Gain on Investment Securities (6,451,835) (1,179,375)
------------ -------------
TOTAL DISTRIBUTIONS (6,832,517) (1,508,140)
------------ -------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 259,425,974 143,331,961
Reinvestment of Distributions 6,781,554 1,510,374
------------ -------------
266,207,528 144,842,335
Amounts Paid for Repurchases of Shares (263,489,815) (140,754,802)
------------ -------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 2,717,713 4,087,533
------------ -------------
Total Increase in Net Assets 11,855,768 6,622,117
NET ASSETS
Beginning of Period 46,693,185 40,071,068
------------ -------------
End of Period (Including Accumulated
Undistributed Net Investment Income of
$10,517 and $4,778, respectively) 58,548,953 46,693,185
============ =============
FUND SHARE TRANSACTIONS
Shares Sold 19,903,341 11,466,923
Shares Issued from Reinvestment
of Distributions 551,365 122,792
------------ -------------
20,454,706 11,589,715
Shares Repurchased (20,367,666) (11,162,000)
------------ -------------
Net Increase in Fund Shares 87,040 427,715
============ =============
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. -Small Company Value Fund
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Diversified
Funds, Inc. (the "Fund") is incorporated in Maryland and presently consists of
Small Company Value Fund (Small Company Fund prior to February 1, 1997). 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.
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 aquired. Income and expenses are
translated into U.S. dollars at the rates of exchange prevailing when
accrued.
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. Cost is determined
on the specific identification basis.
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.
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.
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. Of the ordinary income
distributions declared for the year ended July 31, 1997, 8.25% qualified for
the dividends received deduction available to the Fund's corporate
shareholders. Investment income received from foreign sources may be subject
to foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements.
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 corporate actions, foreign currency transactions, nontaxable
dividends, net operating losses and expired capital loss carryforwards. For
the year ended July 31, 1997, the Fund reclassified $10,495 from accumulated
undistributed net realized gain on investment securities and $310 from
paid-in capital to accumulated undistributed net investment income. Net
investment income, net realized gains and net assets were not affected.
<PAGE>
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
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 year ended July
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 $67,096,159 and $79,010,864, respectively.
There were no purchases or sales of U.S. Government Securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At July 31, 1997, the gross appreciation
of securities in which there was an excess of value over tax cost amounted to
$7,218,682 and the gross depreciation of securities in which there was an excess
of tax cost over value amounted to $382,117, resulting in net appreciation of
$6,836,565.
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IMR.
<PAGE>
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan are based on an annual rate of 40% of the retainer fee at the time of
retirement.
Pension expenses for the year ended July 31, 1997, included in Directors'
Fees and Expenses in the Statement of Operations were $662. Unfunded accrued
pension costs of $911 and pension liability of $2,263 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 redemption's 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 July 31, 1997, there
were no such borrowings.
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Value Fund
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period
Ended
Year Ended July 31 July 31
---------------------------------- ----------
1997 1996 1995 1994^
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $ 12.19 $ 11.77 $ 9.76 $ 10.00
---------------------------------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.08 0.05 0.06
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 4.10 0.68 2.05 (0.28)
---------------------------------- ----------
Total from Investment Operations 4.19 0.76 2.10 (0.22)
---------------------------------- ----------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.09 0.08 0.09 0.02
Distributions from Capital Gains 1.35 0.26 0.00 0.00
---------------------------------- ----------
Total Distributions 1.44 0.34 0.09 0.02
---------------------------------- ----------
Net Asset Value - End of Period 14.94 12.19 11.77 9.76
================================== ==========
TOTAL RETURN 36.97% 6.47% 21.64% (2.21%)*
RATIOS
Net Assets - End of Period
($000 Omitted) 58,549 46,693 40,071 13,474
Ratio of Expenses to Average
Net Assets# 1.25%@ 1.09%@ 1.00% 1.00%~
Ratio of Net Investment Income
to Average Net Assets# 0.75% 0.61% 0.84% 1.20%~
Portfolio Turnover Rate 147% 156% 73% 55%*
Average Commission Rate Paid ^^ 0.0582 - - -
</TABLE>
^ From December 1, 1993, commencement of investment 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 and IMR for the
years ended July 31, 1997, 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 1.35%, 1.09%, 1.32% and 1.64%
(annualized), respectively, and ratio of net investment income to average net
assets would have been 0.65%, 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
^^ 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>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors 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 INVESCO Small Company Value Fund
(formerly, INVESCO Small Company Fund, the sole portfolio constituting INVESCO
Diversified Funds, Inc., hereafter referred to as the "Fund") at July 31, 1997,
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, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures for unsettled security transactions, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
September 2, 1997
<PAGE>
FAMILY OF FUNDS
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- --------------------------------------------------------------------------------
International
International Growth 49 FSIGX IntlGr
Asian Growth 41 IVAGX AsianGr
European 56 FEURX Europ
European Small Company 37 IVECX EuroSmCo
Latin American Growth 34 IVSLX LatinAmGr
Pacific Basin 54 FPBSX PcBas
- --------------------------------------------------------------------------------
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
Realty 42 IVSRX Realty
Technology 55 FTCHX Tech
Utilities 58 FSTUX Util
Worldwide Capital Goods 38 ISWGX WldCap
Worldwide Communications 39 ISWCX WldCom
- --------------------------------------------------------------------------------
Capital Appreciation
Growth 10 FLRFX Grwth
Dynamics 20 FIDYX Dynm
Small Company 74 IDSCX DivSmCo
Emerging Growth 60 FIEGX Emgrth
- --------------------------------------------------------------------------------
Growth & Income
Industrial Income 15 FIIIX IndInc
Value Equity 46 FSEQX ValEq
Multi-Asset Allocation 70 IMAAX MulAstAl
Balanced 71 IMABX Bal
Total Return 48 FSFLX TotRtn
- --------------------------------------------------------------------------------
Bond
Short-Term Bond 33 INIBX ShTrBd
Intermediate Government Bond 47 FIGBX IntGov
U.S. Government Securities 32 FBDGX USGvt
Select Income 30 FBDSX SelInc
High Yield 31 FHYPX HiYld
- --------------------------------------------------------------------------------
Tax-Exempt
Tax-Free Intermediate Bond 36 IVTIX *
Tax-Free Long-Term Bond 35 FTIFX TxFre
- --------------------------------------------------------------------------------
Money Market
U.S. Government Money Fund 44 FUGXX InvGvtMF
Cash Reserves 25 FDSXX InvCshR
Tax-Free Money Fund 40 FFRXX InvTaxFree
<PAGE>
* 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>
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 simply 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 TIMES WHEN YOU'LL FIND THE EASY WAY MAY ALSO BE
ONE 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
Bank Account Number __ Savings Account
- --------------------------------------------------------------------------------
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
<PAGE>
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 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
(As of 9/29/97, INVESCO Distributors, Inc.,
Distributor)
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied by a current prospectus.
