Annual Report
July 31, 1998
INVESCO Small Company Value Fund
A no-load fund seeking
long-term capital growth
You should know
what INVESCO knows.(TM)
INVESCO FUNDS
<PAGE>
Market Overview August 1998
For most of the 1990s, the U.S. equity markets have enjoyed high returns with
relatively limited volatility. In fact, many domestic equity investors have come
to expect returns of greater than 20% on an annual basis. So many were shocked
when the Asian financial crisis caused a market correction -- a decline in value
of more than 10% from the high -- in the fall of 1997. And when the equity
markets experienced another correction, especially in small- and mid-cap stocks,
in the summer of 1998, speculation intensified that the bull market for equities
might be over.
However, as volatile as the equity markets seem, investors need to
remember:
o History has shown that market corrections are quite common, and that
the seven-year period in the 1990s without a correction was highly
unusual.
o Over longer time periods, the average annual return on equities is
between 10% to 12%.
o Most bull markets end as a result of deteriorating economic
conditions, increasing inflation, and rising interest rates.
The last bullet point is very important when analyzing recent market
volatility. Although economic growth, as measured by Gross Domestic Product
(GDP), slowed in the second quarter of 1998, the U.S. economy is still growing
at an above-average rate of more than 3%. Granted, the Asian financial crisis
has slowed growth here, but so far our economy has remained strong and consumer
confidence is high. In addition, the threat of inflation is not present even
though real wages are increasing; in many cases, both commodity and consumer
prices are falling. Within this environment, the chances for an increase in
interest rates are minimal and the likelihood of a continued expansion remains
good.
Although market volatility can be disconcerting to investors, it is a
common occurrence when investing in equities. But if you are an investor who is
uncomfortable with wide price swings, it may be a good time to evaluate your
financial goals and adjust your portfolio accordingly. Remember that one of the
best ways to reduce volatility is diversification.
INVESCO Small Company Value Fund
Small Company Value Fund
Average Annual Total Return
as of 7/31/98(2)
1 Year -2.12%
----------------------------------------------
Since Inception (12/93) 12.01%
----------------------------------------------
As the line graph illustrates, for the period from inception through
7/31/98, the value of a $10,000 investment in INVESCO Small Company Value Fund,
plus reinvested dividends and capital gain distributions, would have risen to
$16,979. 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.)(2)
For the one-year period ended 7/31/98, INVESCO Small Company Value Fund had
a total return of -2.12%, compared to a total return of 2.31% for
smaller-capitalization stocks as measured by the Russell 2000.(1),(2)
In managing the fund, we use a value-oriented, quantitative investment
style. This approach skews the fund's holdings towards stocks with low
price-to-book values, strong balance sheets, and a high degree of ownership by
management. We seek to keep the fund industry-and sector-neutral, focusing
instead on individual securities.
<PAGE>
Graph:
This line graph represents a comparison of the value of a $10,000 invest-
ment 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 (12/93) through 7/31/98.
During the last 12 months, investors have increasingly turned their
attention to a limited number of large-capitalization stocks. This has caused a
significant difference in returns between large-cap and small-cap stocks, and
has pushed relative valuations on large-caps to levels not seen since the early
1970s. Although small-cap stocks have lagged significantly over the past year,
their relative valuations appear attractive. Many of these firms are benefiting
from the strong domestic economy; in addition, they tend to have limited
international exposure, so events in the Asian/Pacific Rim area may have minor
effects on company fundamentals.
Within the small-cap market, investors continue to favor growth stocks over
value stocks -- causing the fund to underperform its benchmark. However, history
has shown us that, over full market cycles, value stocks typically may
outperform, rewarding patient investors who stick to this disciplined investment
approach. (Of course, past performance is not a guarantee of future results.)
Although individual security selection drives the performance of the fund,
the financial services and consumer cyclical sectors enhanced results over the
last 12 months. Both of these sectors continue to benefit from strength in the
domestic economy. The financial services sector is in the midst of a major
consolidation trend, offering continued potential.
Looking Forward
Over the last four years, large-cap stocks have significantly outperformed
small-caps. Historically, when relative valuations become this extreme, change
may be imminent. When the current market environment shifts and investors
re-visit small-cap stocks, we may enter a prolonged period where small-caps take
the market lead.
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.
<PAGE>
Ten Largest Common Stock Holdings
-- Small Company Value Fund
July 31, 1998
Description Value
- -------------------------------------------------------------------------------
Orion Capital $ 948,150
Shurgard Storage Centers Class A 849,750
Bindley Western Industries 804,396
Footstar Inc 789,431
CHS Electronics 732,950
Pulte Corp 710,644
US Trust 682,656
Imperial Bancorp 676,744
Cullen/Frost Bankers 669,375
Delphi Financial Group 661,994
Composition of holdings is subject to change.
- --------------------------------------------------------------------------------
Statement of Investment Securities --
Small Company Value Fund
July 31, 1998
- --------------------------------------------------------------------------------
% Description Shares Value
- --------------------------------------------------------------------------------
100.00 COMMON STOCKS
1.00 AEROSPACE & DEFENSE
Esterline Technologies 9,600 $ 169,200
GenCorp Inc 15,500 357,469
- --------------------------------------------------------------------------------
526,669
- --------------------------------------------------------------------------------
1.08 AIR FREIGHT
Airborne Freight 15,600 372,450
Halter Marine Group(a) 12,400 196,850
- --------------------------------------------------------------------------------
569,300
- --------------------------------------------------------------------------------
0.56 AIRLINES
America West Holdings Class B(a) 12,200 293,562
- --------------------------------------------------------------------------------
2.17 AUTO PARTS
Arvin Industries 15,100 587,012
Borg-Warner Automotive 5,000 235,312
Detroit Diesel(a) 15,000 320,625
- --------------------------------------------------------------------------------
1,142,949
- --------------------------------------------------------------------------------
8.64 BANKS
Commerce Bancorp 2,625 119,437
Cullen/Frost Bankers 12,600 669,375
FirstBank Puerto Rico 11,100 301,781
HUBCO Inc 10,500 340,594
Imperial Bancorp(a) 23,850 676,744
<PAGE>
Independent Bank 9,600 $ 171,600
Riggs National 18,200 502,775
Silicon Valley Bancshares(a) 5,500 170,500
TR Financial 10,600 400,150
Trustmark Corp 6,700 134,419
US Trust 8,500 682,656
Union Planters 7,168 390,636
- --------------------------------------------------------------------------------
4,560,667
- --------------------------------------------------------------------------------
1.85 BEVERAGES
Canandaigua Brands Class A(a) 11,600 546,650
Coors (Adolph) Co Class B 11,400 429,994
- --------------------------------------------------------------------------------
976,644
- --------------------------------------------------------------------------------
5.39 BUILDING MATERIALS
Cameron Ashley Building
Products(a) 12,000 194,250
Centex Construction Products 10,700 465,450
General Cable 11,600 337,125
Southdown Inc 10,500 656,906
TJ International 23,500 546,375
Texas Industries 17,400 648,150
- --------------------------------------------------------------------------------
2,848,256
- --------------------------------------------------------------------------------
0.35 CABLE
Adelphia Communications
Class A(a) 5,200 185,575
- --------------------------------------------------------------------------------
1.23 CHEMICALS
Dexter Corp 8,600 235,425
Ferro Corp 10,000 230,000
NL Industries 8,900 184,675
- --------------------------------------------------------------------------------
650,100
- --------------------------------------------------------------------------------
1.63 COMMUNICATIONS -- EQUIPMENT
& MANUFACTURING
Comverse Technology(a) 9,400 479,988
Tekelec(a) 12,200 244,000
World Access(a) 4,700 135,125
- --------------------------------------------------------------------------------
859,113
- --------------------------------------------------------------------------------
3.07 COMPUTER RELATED
BancTec Inc(a) 11,050 177,491
CHS Electronics(a) 42,800 732,950
Inter-Tel Inc 13,500 216,422
Stratus Computer(a) 4,000 115,000
Symantec Corp(a) 8,200 198,850
Systems & Computer Technology(a) 8,200 180,400
- --------------------------------------------------------------------------------
1,621,113
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
0.44 CONSUMER FINANCE
FIRSTPLUS Financial Group(a) 5,900 230,100
- --------------------------------------------------------------------------------
1.01 CONTAINERS
AptarGroup Inc 8,700 535,594
- --------------------------------------------------------------------------------
0.26 DISTRIBUTION
Russ Berrie & Co 5,900 135,700
- --------------------------------------------------------------------------------
5.68 ELECTRIC UTILITIES
Central Maine Power 17,700 $ 335,194
CILCORP Inc 6,000 280,875
Cleco Corp 6,100 181,094
Commonwealth Energy
Systems SBI 14,000 497,000
Hawaiian Electric Industries 10,400 393,250
Interstate Energy 15,276 447,778
Minnesota Power 8,800 347,050
SIGCORP Inc 17,000 514,250
- --------------------------------------------------------------------------------
2,996,491
- --------------------------------------------------------------------------------
0.95 ELECTRICAL EQUIPMENT
Moog Inc Class A(a) 7,800 271,050
Technitrol Inc 9,800 231,525
- --------------------------------------------------------------------------------
502,575
- --------------------------------------------------------------------------------
0.48 ELECTRONICS
Superior Telecom 7,400 255,300
- --------------------------------------------------------------------------------
2.84 ELECTRONICS-- SEMICONDUCTOR
DII Group(a) 14,700 238,875
DSP Group(a) 13,600 273,700
Integrated Circuit Systems(a) 21,300 271,575
PMC-Sierra Inc(a) 7,000 286,125
Plexus Corp(a) 21,300 429,994
- --------------------------------------------------------------------------------
1,500,269
- --------------------------------------------------------------------------------
0.27 FINANCIAL
Doral Financial 7,600 141,550
- --------------------------------------------------------------------------------
Smithfield Foods(a) 8,500 201,875
- --------------------------------------------------------------------------------
0.93 GAMING
Anchor Gaming(a) 6,600 448,800
Grand Casinos(a) 3,300 41,044
- --------------------------------------------------------------------------------
489,844
- --------------------------------------------------------------------------------
1.55 HEALTH CARE DRUGS -- PHARMACEUTICALS
Bindley Western Industries 26,266 804,396
Herbalife International Class A 600 11,437
- --------------------------------------------------------------------------------
815,833
- --------------------------------------------------------------------------------
<PAGE>
4.15 HEALTH CARE RELATED
ATL Ultrasound(a) 6,900 345,647
Arterial Vascular Engineering(a) 11,000 434,500
Datascope Corp(a) 9,400 213,850
Express Scripts Class A(a) 1,400 102,944
Integrated Health Services 10,600 328,600
OEC Medical Systems(a) 9,400 206,800
SonoSight Inc(a) 2 15
Theragenics Corp(a) 10,700 175,213
Trigon Healthcare(a) 12,200 382,013
- --------------------------------------------------------------------------------
2,189,582
- --------------------------------------------------------------------------------
2.36 HOMEBUILDING
Kaufman & Broad Home 7,800 217,912
Lennar Corp 5,200 143,650
Pulte Corp 25,100 710,644
US Home(a) 4,700 175,956
- --------------------------------------------------------------------------------
1,248,162
- --------------------------------------------------------------------------------
1.23 HOUSEHOLD FURNITURE & APPLIANCES
Ethan Allen Interiors 7,000 289,187
Furniture Brands International(a) 12,800 361,600
- --------------------------------------------------------------------------------
650,787
- --------------------------------------------------------------------------------
7.14 INSURANCE
American Heritage Life Investment 10,200 246,075
Delphi Financial Group(a) 11,795 661,994
Executive Risk 3,300 159,844
FBL Financial Group 12,200 304,237
Fidelity National Financial 6,900 260,044
Fremont General 8,700 497,531
NAC Re 9,400 483,513
Orion Capital 19,600 948,150
Selective Insurance Group 7,900 153,063
Vesta Insurance Group 3,800 57,000
- --------------------------------------------------------------------------------
3,771,451
- --------------------------------------------------------------------------------
0.66 INVESTMENT BANK/BROKER FIRM
Advest Group 9,400 250,862
Raymond James Financial 3,900 99,938
- --------------------------------------------------------------------------------
350,800
- --------------------------------------------------------------------------------
0.62 IRON & STEEL
AK Steel Holding 14,000 223,125
National Steel Class B 10,900 106,275
- --------------------------------------------------------------------------------
329,400
- --------------------------------------------------------------------------------
0.37 LODGING -- HOTELS
Bristol Hotels & Resorts(a)(b) 4,275 29,658
Prime Hospitality(a) 11,600 164,575
- --------------------------------------------------------------------------------
194,233
- --------------------------------------------------------------------------------
<PAGE>
2.72 MACHINERY
Applied Power Class A 9,400 311,375
Asyst Technologies(a) 8,700 116,906
Gencor Industries 7,200 122,400
Manitowoc Co 7,200 241,200
NACCO Industries Class A 1,900 219,094
Terex Corp(a) 20,300 425,031
- --------------------------------------------------------------------------------
1,436,006
- --------------------------------------------------------------------------------
1.14 MANUFACTURING
Albany International Class A 15,900 327,937
Robbins & Myers 5,900 168,150
Tredegar Industries 4,500 104,063
- --------------------------------------------------------------------------------
600,150
- --------------------------------------------------------------------------------
2.19 NATURAL GAS
Eastern Enterprises 9,000 359,437
NUI Corp 11,900 263,288
- --------------------------------------------------------------------------------
% Description Shares Value
- --------------------------------------------------------------------------------
ONEOK Inc 15,600 $ 532,350
- --------------------------------------------------------------------------------
1,155,075
- --------------------------------------------------------------------------------
1.93 OFFICE EQUIPMENT & SUPPLIES
Knoll Inc(a) 13,800 488,175
United Stationers(a) 7,800 529,425
- --------------------------------------------------------------------------------
1,017,600
- --------------------------------------------------------------------------------
2.89 OIL & GAS RELATED
Cliffs Drilling(a) 7,600 156,275
Energen Corp 10,000 171,875
HS Resources(a) 8,400 92,925
Marine Drilling(a) 25,300 281,463
Maverick Tube(a) 19,200 158,400
St Mary Land & Exploration 5,000 98,750
Veritas DGC(a) 17,100 568,575
- --------------------------------------------------------------------------------
1,528,263
- --------------------------------------------------------------------------------
0.89 PUBLISHING
Consolidated Graphics(a) 5,700 335,231
Pulitzer Publishing 1,566 132,816
- --------------------------------------------------------------------------------
468,047
- --------------------------------------------------------------------------------
9.82 REAL ESTATE INVESTMENT TRUST
American General Hospitality 25,500 486,094
CBL & Associates Properties 26,700 649,144
Essex Property Trust 9,300 283,650
FelCor Lodging Trust 13,057 360,693
Gables Residential Trust SBI 13,200 353,925
Innkeepers USA Trust 31,000 377,812
Koger Equity 20,600 383,675
MGI Properties 11,800 310,488
Macerich Co 10,100 275,856
Prentiss Properties Trust 16,400 390,525
SL Green Realty 6,400 140,800
<PAGE>
Shurgard Storage Centers Class A 30,900 849,750
Sunstone Hotel Investors 29,100 323,738
- --------------------------------------------------------------------------------
5,186,150
- --------------------------------------------------------------------------------
2.68 RESTAURANTS
Brinker International(a) 15,400 300,300
CEC Entertainment(a) 16,700 446,725
CKE Restaurants 12,760 476,905
Cheesecake Factory(a) 9,800 191,100
- --------------------------------------------------------------------------------
1,415,030
- --------------------------------------------------------------------------------
5.37 RETAIL
Abercrombie & Fitch Class A(a) 7,300 338,994
American Eagle Outfitters(a) 9,300 459,187
Footstar Inc(a) 21,300 789,431
Pier 1 Imports 25,125 391,008
Proffitt's Inc(a) 7,700 242,550
Shopko Stores(a) 21,000 614,250
- --------------------------------------------------------------------------------
2,835,420
- --------------------------------------------------------------------------------
4.28 SAVINGS & LOAN
Astoria Financial 9,300 466,162
Downey Financial 10,920 354,900
FirstFed Financial(a) 22,600 491,550
Flagstar Bancorp 7,200 179,100
Peoples Heritage Financial Group 18,800 425,350
Sovereign Bancorp 11,860 190,131
St Paul Bancorp 6,700 150,750
- --------------------------------------------------------------------------------
2,257,943
- --------------------------------------------------------------------------------
1.33 SERVICES
Billing Information Concepts(a) 25,700 342,131
Norrell Corp 10,200 195,713
StaffMark Inc(a) 6,100 163,175
- --------------------------------------------------------------------------------
701,019
- --------------------------------------------------------------------------------
0.73 TELECOMMUNICATIONS -- CELLULAR
& WIRELESS
Brightpoint Inc(a) 16,200 230,850
CellStar Corp(a) 1,300 18,200
WinStar Communications(a) 4,200 138,600
- --------------------------------------------------------------------------------
387,650
- --------------------------------------------------------------------------------
1.51 TELECOMMUNICATIONS -- LONG DISTANCE
Dycom Industries(a) 14,100 484,687
Pacific Gateway Exchange(a) 5,100 204,000
SmarTalk TeleServices(a) 6,700 110,969
- --------------------------------------------------------------------------------
799,656
- --------------------------------------------------------------------------------
0.41 TELEPHONE
e.spire Communications(a) 10,900 218,000
- --------------------------------------------------------------------------------
Burlington Industries(a) 50,900 531,269
Galey & Lord Inc(a) 11,800 146,025
- --------------------------------------------------------------------------------
677,294
- --------------------------------------------------------------------------------
Springs Industries Class A 11,200 429,100
- --------------------------------------------------------------------------------
<PAGE>
1.00 TOBACCO
DiMon Inc 19,000 206,625
Standard Commercial 10,800 108,000
Universal Corp 6,100 212,356
- --------------------------------------------------------------------------------
526,981
- --------------------------------------------------------------------------------
0.35 TRUCKERS
Johnstown America Industries(a) 10,900 182,575
- --------------------------------------------------------------------------------
0.38 UTILITIES WATER
E'town Corp 5,000 $ 202,812
- --------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $54,053,744)
(Cost for Income Tax Purposes
$54,090,987) $ 52,798,265
================================================================================
(a) Security is non-income producing.
(b) Security is a when-issued security.
See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities --
Small Company Value Fund
July 31, 1998
ASSETS
Investment Securities at Value
(Cost $54,053,744) $ 52,798,265
Cash 300,075
Receivables:
Investment Securities Sold 1,012,741
Fund Shares Sold 69,892
Dividends and Interest 50,693
Prepaid Expenses and Other Assets 22,381
- --------------------------------------------------------------------------------
TOTAL ASSETS 54,254,047
- --------------------------------------------------------------------------------
LIABILITIES
Payables:
Distributions to Shareholders 5,713
Investment Securities Purchased 338,699
Fund Shares Repurchased 388,031
Accrued Distribution Expenses 4,067
Accrued Expenses and Other Payables 20,452
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 756,962
- --------------------------------------------------------------------------------
Net Assets at Value $ 53,497,085
- --------------------------------------------------------------------------------
NET ASSETS
Paid-in Capital(a) $ 51,613,505
Accumulated Undistributed Net
Investment Income 30,966
Accumulated Undistributed Net Realized
Gain on Investment Securities 3,108,093
Net Depreciation of Investment Securities (1,255,479)
- --------------------------------------------------------------------------------
Net Assets at Value $ 53,497,085
- --------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption
Price per Share $ 11.02
- --------------------------------------------------------------------------------
(a)The Fund has 100 million authorized shares of common stock, par value of
$0.01 per share, of which 4,856,426 were outstanding at July 31, 1998.
See Notes to Financial Statements
<PAGE>
Statement of Operations --
Small Company Value Fund
Year Ended July 31, 1998
INVESTMENT INCOME
INCOME
Dividends $ 836,967
Interest 222,167
- --------------------------------------------------------------------------------
TOTAL INCOME 1,059,134
- --------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 494,071
Distribution Expenses 5,173
Transfer Agent Fees 208,312
Administrative Fees 19,881
Custodian Fees and Expenses 35,583
Directors' Fees and Expenses 12,516
Professional Fees and Expenses 22,227
Registration Fees and Expenses 81,370
Reports to Shareholders 26,321
Other Expenses 5,686
- --------------------------------------------------------------------------------
TOTAL EXPENSES 911,140
Fees and Expenses Absorbed by Investment Adviser (82,438)
Fees and Expenses Paid Indirectly (7,278)
- --------------------------------------------------------------------------------
NET EXPENSES 821,424
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 237,710
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 8,225,785
Change in Net Depreciation of Investment Securities (8,104,057)
- --------------------------------------------------------------------------------
NET GAIN ON INVESTMENT SECURITIES 121,728
- --------------------------------------------------------------------------------
Net Increase in Net Assets from Operations $ 359,438
================================================================================
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
-- Small Company Value Fund
Year Ended July 31
- --------------------------------------------------------------------------------
1998 1997
OPERATIONS
Net Investment Income $ 237,710 $ 375,616
Net Realized Gain on Investment
Securities 8,225,785 9,253,370
Change in Net Appreciation
(Depreciation) of Investment
Securities (8,104,057) 6,341,586
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 359,438 15,970,572
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net Investment Income (239,736) (380,682)
Net Realized Gain on Investment
Securities (14,101,863) (6,451,835)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (14,341,599) (6,832,517)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 249,127,951 259,425,974
Reinvestment of Distributions 12,956,406 6,781,554
- --------------------------------------------------------------------------------
262,084,357 266,207,528
Amounts Paid for Repurchases
of Shares (253,154,064) (263,489,815)
- --------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS 8,930,293 2,717,713
- --------------------------------------------------------------------------------
Total Increase (Decrease) in
Net Assets (5,051,868) 11,855,768
NET ASSETS
Beginning of Period 58,548,953 46,693,185
- --------------------------------------------------------------------------------
Accumulated Undistributed
Net Investment Income of
$30,966 and $10,517,
respectively $ 53,497,085 $ 58,548,953
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 18,287,646 19,903,341
Shares Issued from Reinvestment
of Distributions 1,148,058 551,365
- --------------------------------------------------------------------------------
19,435,704 20,454,706
Shares Repurchased (18,497,657) (20,367,666)
- --------------------------------------------------------------------------------
Net Increase in Fund Shares 938,047 87,040
================================================================================
See Notes to Financial Statements
<PAGE>
Notes to Financial Statements -- Small Company Value Fund
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Diversified
Funds, Inc. is incorporated in Maryland and presently consists of Small Company
Value Fund (the "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
under procedures established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
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
agreements 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.
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. 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.
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.
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, 1998, 2.83%
qualified for the dividends received deduction available to the Fund's
corporate shareholders.
<PAGE>
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
to shareholders are recorded by the Fund on the ex dividend/distribution
date. The Fund distributes net realized capital gains, if any, to its
shareholders at least annually, if not offset by capital loss
carryovers. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for nontaxable dividends, net
operating losses and expired capital loss carryforwards. For the year
ended July 31, 1998, the Fund reclassified $22,475 from accumulated
undistributed net realized gain on investment securities to
accumulated undistributed net investment income. Net investment
income, net realized gains, paid-in capital and net assets were not
affected.
F. EXPENSES -- Under an agreement between the Fund and the Fund's Custodian,
agreed upon Custodian Fees and Expenses are reduced by credits granted by
the Custodian from any temporarily uninvested cash. Such credits are
included in Fees and Expenses Paid Indirectly in the Statement of
Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group,
Inc. ("IFG") serves as the Fund's investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee is based on the annual
rate of 0.75% 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.
A plan of distribution pursuant to Rule 12b-1 of the Act (the "Plan")
became effective June 1, 1998. The plan provides for compensation of marketing
and advertising expenditures to INVESCO Distributors, Inc. ("IDI"), a wholly
owned subsidiary of IFG, to a maximum of 0.25% of new assets. For the year ended
July 31, 1998, the Fund paid the Distributor $1,106 under the plan of
distribution.
IFG receives a transfer agent fee at an annual rate of $20.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
In accordance with an Administrative Agreement, the Fund pays IFG an annual
fee of $10,000, plus an additional amount computed at an annual rate of 0.015%
of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG 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, 1998, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were $81,929,293 and $79,937,700, respectively.
There were no purchases or sales of U.S. Government Securities.
NOTE 4 -- APPRECIATION AND DEPRECIATION. At July 31, 1998, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $5,337,173 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $6,629,895, resulting in net
depreciation of $1,292,722.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG, IDI 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 were based on an annual rate of 40% of the retainer fee at the time of
retirement. As of July 1, 1998, benefits are based on an annual rate of 50% of
the sum of the retainer fee at the time of retirement plus the annual meeting
fee.
Pension expenses for the year ended July 31, 1998, included in Directors'
Fees and Expenses in the Statement of Operations were $1,213. Unfunded accrued
pension costs of $1,607 and pension liability of $4,172 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 July 31, 1998, there
were no such borrowings.
--------------------------------------------------------------------
Other Information
UNAUDITED
On May 6, 1998, a special meeting of the shareholders of the Fund was held at
which they approved a Plan and Agreement of Distribution for the Fund. The votes
were: For - 4,162,013, Against - 184,110 and Abstain - 440,368; for a Total of
4,786,491.
<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 INVESCO Small Company Value Fund
(the sole portfolio constituting INVESCO Diversified Funds, Inc., hereafter
referred to as the "Fund") at July 31, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
September 4, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - Small Company Value Fund
(For a Fund Share Outstanding Throughout Each Period)
Period
Ended
Year Ended July 31 July 31
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $14.94 $12.19 $11.77 $ 9.76 $10.00
- -------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.06 0.09 0.08 0.05 0.06
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.30) 4.10 0.68 2.05 (0.28)
- -------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.24) 4.19 0.76 2.10 (0.22)
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.05 0.09 0.08 0.09 0.02
Distributions from Capital Gains 3.63 1.35 0.26 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------
Total Distributions 3.68 1.44 0.34 0.09 0.02
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $11.02 $14.94 $12.19 $11.77 $ 9.76
===================================================================================================================
TOTAL RETURN (2.12%) 36.97% 6.47% 21.64% (2.21%)(b)
RATIOS
Net Assets - End of Period
($000 Omitted) $53,497 $58,549 $46,693 $40,071 $13,474
Ratio of Expenses to Average
Net Assets(c) 1.26%(d) 1.25%(d) 1.09%(d) 1.00% 1.00%(e)
Ratio of Net Investment Income
to Average Net Assets(c) 0.36% 0.75% 0.61% 0.84% 1.20%(e)
Portfolio Turnover Rate 132% 147% 156% 73% 55%(b)
</TABLE>
(a) From December 1, 1993, commencement of investment operations, to July
31, 1994.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Fund were voluntarily absorbed by IFG and IMR for
the years ended July 31, 1998, 1997, 1996 and 1995 and the period ended July
31, 1994. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.38%, 1.35%, 1.09%,
1.32% and 1.64% (annualized), respectively, and ratio of net investment
income to average net assets would have been 0.24%, 0.65%, 0.61%, 0.52%
and 0.56% (annualized), respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(e) Annualized
<PAGE>
FAMILY OF FUNDS
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- -------------------------------------------------------------------------------
International
International Growth 49 FSIGX IntlGr
Emerging Markets 43 * *
Asian Growth 41 IVAGX AsianGr
Pacific Basin 54 FPBSX PcBas
European 56 FEURX Europ
European Small Company 37 IVECX EuroSmCo
Latin American Growth 34 IVSLX LatinAmGr
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
Equity
Growth & Income 21 IVGIX GRI
Growth 10 FLRFX Grwth
Dynamics 20 FIDYX Dynm
Small Company Growth 60 FIEGX SmCoGth
Value Equity 46 FSEQX ValEq
Small Company Value 74 IDSCX SmCoVal
S&P 500 Index Fund Class II 23 ISPIX SP500II
- -------------------------------------------------------------------------------
All-Weather
Industrial Income 15 FIIIX IndInc
Multi-Asset Allocation 70 IMAAX MulAstAl
Total Return 48 FSFLX TotRtn
Balanced 71 IMABX Bal
- -------------------------------------------------------------------------------
Bond
Short-Term Bond 33 INIBX ShTrBd
Intermediate Government Bond 47 FIGBX IntGov
U.S. Government Securities 32 FBDGX USGvt
<PAGE>
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
* 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 AUTHORIZATION FOR AUTOMATIC INVESTMENTS
Before returning this Authorization, please be sure to contact your
bank for the correct ABA number and account number.
I authorize INVESCO Funds Group to transfer money from my checking or savings
account on or about the 7th or 21st (check one) day of each month for the
amounts and funds indicated below:
Fund___________________________________ Acct.#_______________________________
$__________________________ ($50 minimum) ___ 7th ___21st
- ------------------------------------------------------------------------------
Bank Name
- ------------------------------------------------------------------------------
Bank Street Address
- ------------------------------------------------------------------------------
City, State, Zip
- ------------------------------------------------------------------------------
ABA Number (available from your bank) Bank Phone Number
___________________________ This is a __Checking Account __ Savings Account
Bank Account Number
- ------------------------------------------------------------------------------
Owner's Name (First, Middle Initial, Last)
- ------------------------------------------------------------------------------
Joint Owner's Name (First, Middle Initial, Last)
- ------------------------------------------------------------------------------
Owner Street Address
- ------------------------------------------------------------------------------
City, State, Zip
- ------------------------------------------------------------------------------
Signature Date
- ------------------------------------------------------------------------------
Signature Date
- ------------------------------------------------------------------------------
Daytime Telephone Number Evening Telephone Number
Don't forget to attach a voided check or deposit slip.
This authority is to remain in effect until I revoke it in writing and, until
INVESCO receives such notification, I agree INVESCO will be fully protected in
honoring any such electronic debit. I further agree that if any such electronic
debit is not honored, whether with cause or without cause and whether
intentionally or unintentionally, INVESCO will not be liable whatsoever. This
authorization will become a part of the fund application subject to the terms,
representations and conditions thereof.
Like other investment systems, period investment plans do not insure a profit,
nor do they protect against loss in a falling market. Since these plans involve
continuous investment in securities regardless of fluctuating price levels in
the market, you should consider your financial ability to continue purchases
through low price levels. Finally, be aware that you will incur a loss under the
plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
<PAGE>
EasiVest makes it easy to pay yourself first.
It seems that for most of us the hardest part of investing at regular
intervals comes down to imply writing the check, finding the stamp, and putting
it in the mail. But with INVESCO's EasiVest it's so easy that we'll do almost
all the work for you.
After you fill out the authorization and return it with a voided check, the
exact dollar amount you specify will be electronically transferred from your
bank account to your designated fund on the same day each month.
Using EasiVest is one of the few time when you'll find the easy way may also be
on of the best.
For years smart investors have used an investment strategy known as
dollar-cost averaging. It only makes sense that when prices are high an investor
will want to buy fewer shares, and when prices are low he will want to buy more.
By investing a fixed amount at regular intervals with INVESCO's EasiVest, you
can take advantage of these market fluctuations.
Over a sufficient period of time, dollar-cost averaging may make the
average price you pay per share less than the actual average price per share. So
follow the lead of successful investors and take advantage of dollar-cost
averaging with INVESCO's EasiVest.
Like other investment systems, periodic investment plans to not insure a
profit, nor do they protect against loss in a falling market. Since these plans
involve continuous investment in securities regardless of fluctuating price
levels in the market, you should consider your financial ability to continue
purchases through low price levels. Finally, be aware that you will incur a loss
under the plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
Just follow these simple authorization instructions and let INVESCO's
EasiVest help you build for your future.
1. Call your bank for their ABA and account numbers. Then complete the
EasiVest authorization and sign it the same way you would your personal
checks.
2. Enclose an unsigned, personal check or savings deposit slip marked
"Void."
3. Place a voided check or savings deposit slip and signed authorization
form in an envelope; then mail it to us.
It's that easy to start building your mutual fund portfolio. And you can
take advantage of INVESCO's EasiVest with as little as $50 a month.
Questions? Call us at 1-800-525-8085.
Start building for your future today.
<PAGE>
INVESCO FUNDS
INVESCO Distributors, Inc., (SM)
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
This information must be
preceded or accompanied
by a current prospectus.
