Semiannual Report
January 31, 1998
INVESCO Small Company Value Fund
A no-load fund seeking
long-term capital growth.
INVESCO FUNDS
<PAGE>
Market Overview February 1998
After seven years of economic expansion, will 1998 be the year in which the
U.S. economy slows down? That's the question currently being pondered by
investment professionals. In 1997, near-perfect conditions contributed to
above-average economic growth as measured by the Gross Domestic Product. This
economic environment was appropriately named the "Goldilocks Economy," as low
inflation, declining interest rates, and increased worker productivity produced
double-digit gains in operating earnings for the fifth straight year for
companies in the S&P 500 -- an unprecedented record. Also, consumer confidence
in 1997 reached the highest level in 28 years, as jobs were plentiful and real
wages improved for many Americans.(1)
Against this backdrop, equity markets produced euphoric returns for
investors -- major equity market indexes (both the S&P 500 and Dow Jones
Industrial Average) returned more than 20% for the third straight year, the
first time in history. However, most of the gains in 1997 were accumulated in
the first eight months of the year; doubts about the sustainability of corporate
profits increased market volatility over the latter half of 1997. In fact, the
Dow Jones Industrial Average experienced swings of greater than 100 points on 52
occasions in 1997 (27 up days and 25 down). Fears of slowing economies in the
Asian/Pacific Rim region, and their affect on the U.S. economy, produced the
first market correction in more than seven years -- a decline in value of more
than 10% from the indexes' highs.(1)
Fixed-income markets also produced above-average results in 1997; however,
these returns exhibited a different performance pattern. In the spring of 1997,
fears of inflation and an overheating economy encouraged the Federal Reserve
Board to increase short-term interest rates by 25 basis points. This action
intensified speculation that the economy was expanding too fast, and higher
interest rates were needed to cool it off. However, as inflation remained
subdued, fears diminished. Investors then focused on the potential deflationary
pressure exerted by the Asian currency crisis -- producing strong returns for
fixed-income investors over the last six months. In fact, the implied rate on
the 30-year U.S. government bond started off 1997 at 6.64%, moved to a high of
7.17% in April, and experienced a steady decline throughout the second half of
the year, ending at 5.97%. (Yields tend to decline as prices rise.)
The investment landscape in the U.S. has changed somewhat in 1998, yet, in
many respects, the economy is still poised for growth with benign inflation.
Unemployment remains at historically low levels and real wages are starting to
increase. Intense price competition is keeping consumer prices in check; in many
cases, prices are declining due to the flood of cheap goods from Asian
countries. But for many companies, the easy gains in earnings produced over the
last few years may be difficult to duplicate. Thus, this may be a year with
increased volatility in the equity markets -- leading to a more selective stock
market. For the fixed-income market, the fundamentals driving the rally in bond
prices remain intact, with additional help from the Asian crisis.
<PAGE>
INVESCO Small Company
Value Fund
As the line graph on page 2 illustrates, for the period from inception
through 1/31/98, the value of a $10,000 investment in INVESCO Small Company
Value Fund, plus reinvested dividends and capital gain distributions, would have
risen to $17,551. 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 six-month period ended 1/31/98, INVESCO Small Company Value Fund had
a total return of 1.18%, compared to a total return of 4.42% for
smaller-capitalization stocks, as measured by the Russell 2000.(1)(2)
The fund continues to use a value-oriented, quantitative investment style to
select equities. This approach skews the fund's investments into 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.
Small Company Value Fund
Average Annual Total Return
as of 1/31/98 (2)
------------------------------
1 Year 19.84%
------------------------------
Since inception (12/93) 14.46%
------------------------------
During the last six months, small-cap stocks lagged the returns produced by
large-caps. The fund underperformed the index on a six-month basis primarily due
to the significant outperformance of high-growth stocks in the late summer of
1997. However, our disciplined investment approach did help mitigate much of the
market volatility in the fall of 1997.
Over the last six months, some of the strongest performing stocks for the
fund were in the utilities and financial services sectors, which have limited
exposure to Asian economies and were reasonably priced. In comparison, many
high-growth, aggressively priced technology stocks suffered severe loss of
capital as much of their future growth was dependent on strong Asian economies.
The fund continues to avoid these types of securities.
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 (12/93)
through 1/31/98.
<PAGE>
Looking Forward
We believe that many of the best investment opportunities in the U.S. may be
available in small-cap stocks. After three years in which large-cap stocks have
significantly outperformed, we may be entering a prolonged period of relative
outperformance for small-cap stocks. This may be especially true over the next
year, as many large-cap stocks will be influenced by the slowdown in Asian
economies -- whereas small-cap stocks depend primarily on the strength of the
U.S. economy. For the patient, long-term investor, small-cap stocks could offer
dynamic possibilities. However, this fund is not suitable for market timing,
historically an inefficient investment strategy.
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. The S&P 500 index
represents the broad equity market, while the Dow Jones Industrial Average is
indicative of large-capitalization stocks.
(2)Total return assumes reinvestment of dividends and capital gain distributions
for the periods indicated. Past performance is not a guarantee of future
results. Investment return and principal value will fluctuate so that, when
redeemed, an investor's shares may be worth more or less than when purchased.
<PAGE>
INVESCO 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
Bond Funds
33 Short-Term Bond
47 Intermediate Government Bond
32 U.S. Government Securities
30 Select Income
31 High Yield
All-Weather Funds
15 Industrial Income
70 Multi-Asset Allocation
48 Total Return
71 Balanced
Equity Funds
10 Growth
20 Dynamics
60 Small Company Growth
46 Value Equity
74 Small Company Value
23 S&P 500 Index Fund
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
43 Emerging Markets
41 Asian Growth
54 Pacific Basin
56 European
37 European Small Company
34 Latin American Growth
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
January 31, 1998
Description Value
- --------------------------------------------------------------------------------
Dexter Corp $857,063
Airborne Freight 832,162
Comverse Technology 815,237
Orion Capital 802,125
Trigon Healthcare 781,075
Magna Group 779,581
Arterial Vascular Engineering 757,050
True North Communications 746,856
Pulte Corp 741,675
Liberty Property Trust SBI 735,088
Composition of holdings is subject to change.
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Value Fund
Statement of Investment Securities
January 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
Shares or
Principal
Description Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 89.15%
AEROSPACE & DEFENSE 0.85%
Esterline Technologies* 4,800 $ 164,700
GenCorp Inc 15,500 383,625
------------
548,325
------------
AIR FREIGHT 2.44%
Airborne Freight 11,700 832,162
Expeditors International of Washington 13,200 410,850
Yellow Corp* 12,700 331,788
------------
1,574,800
------------
AIRLINES 0.41%
America West Holdings Class B* 12,200 266,113
------------
AUTO PARTS 2.06%
Arvin Industries 15,100 520,950
Borg-Warner Automotive 5,000 267,813
Detroit Diesel* 15,000 288,750
MascoTech Inc 13,200 249,975
------------
1,327,488
------------
AUTOMOBILES 0.38%
Smith (A O) Corp 5,800 243,600
------------
BANKS 5.50%
ALBANK Financial 9,800 444,675
Associated Banc-Corp* 7,497 387,033
Cullen Frost Bankers 8,700 477,412
Imperial Bancorp* 15,900 732,394
Independent Bank & Trust 9,600 156,000
Magna Group 17,300 779,581
TR Financial 10,600 315,350
<PAGE>
US Trust 4,300 $ 255,313
------------
3,547,758
------------
BEVERAGES 1.52%
Canandaigua Brands Class A* 11,600 619,150
Coors (Adolph) Co Class B 11,400 361,950
------------
981,100
------------
BIOTECHNOLOGY 0.43%
INCYTE Pharmaceuticals* 6,400 277,600
------------
BUILDING MATERIALS 2.85%
Centex Construction Products 10,700 329,025
Lone Star Industries 12,300 684,187
Southdown Inc 3,900 245,944
TJ International 23,500 578,688
------------
1,837,844
------------
CHEMICALS 1.78%
Dexter Corp 21,000 857,063
Terra Industries 24,300 291,600
------------
1,148,663
------------
COMMUNICATIONS -- EQUIPMENT &
MANUFACTURING 1.57%
Comverse Technology* 24,200 815,237
Tekelec* 6,100 197,869
------------
1,013,106
------------
COMPUTER RELATED 4.47%
Aspen Technology* 12,600 451,237
BancTec Inc* 11,050 282,466
Boole & Babbage* 13,300 427,262
Computer Horizons* 4,800 200,850
Harbinger Corp* 6,900 170,775
Hyperion Software* 10,300 415,862
SMART Modular Technologies* 9,200 263,638
Stratus Computer* 4,000 168,750
Symantec Corp* 8,200 193,725
Systems & Computer Technology* 7,400 308,950
------------
<PAGE>
$ 2,883,515
------------
CONSUMER FINANCE 0.28%
FIRSTPLUS Financial Group* 5,900 179,213
------------
CONTAINERS 0.69%
AptarGroup Inc* 8,700 443,700
------------
DISTRIBUTION 0.24%
Russ Berrie & Co 5,900 151,556
------------
ELECTRIC UTILITIES 4.05%
Black Hills 6,600 216,975
Central Maine Power 17,700 293,156
CILCORP Inc 6,000 268,500
Commonwealth Energy Systems SBI 14,000 481,250
Hawaiian Electric Industries 600 23,437
IES Industries 13,400 491,612
Minnesota Power & Light* 8,800 347,600
SIGCORP Inc* 17,000 485,563
------------
2,608,093
------------
ELECTRICAL EQUIPMENT 1.10%
Electro Scientific Industries* 4,000 124,000
Moog Inc Class A* 7,800 268,125
Technitrol Inc 9,800 315,438
------------
707,563
------------
ELECTRONICS 0.32%
Brown & Sharpe Manufacturing Class A* 19,700 203,156
------------
ELECTRONICS -- SEMICONDUCTOR 2.62%
DSP Group* 13,600 304,300
Dallas Semiconductor* 7,300 344,925
Etec Systems* 11,400 473,100
PMC-Sierra Inc* 7,000 238,000
Plexus Corp* 21,300 330,150
------------
1,690,475
------------
ENGINEERING & CONSTRUCTION 0.45%
Stone & Webster 7,500 290,625
------------
<PAGE>
EQUIPMENT -- SEMICONDUCTOR 0.48%
Kulicke & Soffa Industries* 15,200 $ 307,800
------------
FOODS 0.44%
Smithfield Foods* 8,500 283,688
------------
GAMING 0.59%
Anchor Gaming* 6,600 379,500
------------
HEALTH CARE DRUGS -- PHARMACEUTICALS 2.67%
Agouron Pharmaceuticals* 10,700 371,825
ALPHARMA Inc Class A 5,500 113,094
Bindley Western Industries 15,200 424,650
ICN Pharmaceuticals 4,500 231,187
Perrigo Co* 49,900 580,087
------------
1,720,843
------------
HEALTH CARE RELATED 6.64%
ATL Ultrasound* 6,900 286,350
Acuson Corp* 15,800 266,625
Arterial Vascular Engineering* 10,300 757,050
Datascope Corp* 9,400 215,025
Integrated Health Services 12,600 360,675
OEC Medical Systems* 9,400 207,975
Osteotech Inc* 7,000 183,750
PAREXEL International* 9,000 310,500
Theragenics Corp* 7,500 362,813
Trigon Healthcare* 31,400 781,075
Universal Health Services Class B* 8,400 391,650
West Co 5,200 158,925
------------
4,282,413
------------
HOMEBUILDING 2.23%
Lennar Corp* 13,500 331,594
Nortek Inc* 7,100 184,156
Pulte Corp 17,400 741,675
US Home* 4,700 178,306
------------
1,435,731
------------
HOUSEHOLD FURNITURE & APPLIANCES 0.51%
Furniture Brands International* 12,800 330,400
------------
<PAGE>
INSURANCE 5.57%
ALLIED Group 18,150 $ 499,125
Delphi Financial Group Class A* 11,564 511,707
Executive Risk 3,300 235,125
FBL Financial Group Class A* 6,100 239,806
Frontier Insurance Group 9,700 231,588
Horace Mann Educators 12,000 385,500
NAC Re 9,400 470,000
Orion Capital 18,000 802,125
Vesta Insurance Group 3,800 214,700
------------
3,589,676
------------
INVESTMENT BANK/BROKER FIRM 0.78%
Advest Group 9,400 215,025
Raymond James Financial 8,300 287,387
------------
502,412
------------
IRON & STEEL 0.59%
AK Steel Holding 14,000 250,250
Commercial Metals 4,400 133,100
------------
383,350
------------
LEISURE TIME 0.59%
Carmike Cinemas Class A* 12,700 381,794
------------
LODGING -- HOTELS 0.67%
Bristol Hotel* 8,550 214,819
Prime Hospitality* 11,600 218,950
------------
433,769
------------
MACHINERY 2.39%
Aeroquip-Vickers Inc* 4,200 210,000
Applied Power Class A* 4,700 327,825
Asyst Technologies* 8,700 199,013
Cincinnati Milacron 7,200 183,600
IDEX Corp 11,200 375,200
Manitowoc Co 7,200 244,800
------------
1,540,438
------------
<PAGE>
MANUFACTURING 0.61%
Robbins & Myers 5,900 $ 184,375
Tredegar Industries 3,200 205,800
------------
390,175
------------
NATURAL GAS 0.83%
ONEOK Inc 15,600 533,325
------------
OIL & GAS RELATED 4.16%
Cabot Oil & Gas Class A 14,200 281,337
Cliffs Drilling* 7,600 321,100
Energen Corp 5,000 195,000
HS Resources* 13,700 192,656
Marine Drilling* 13,400 241,200
Newpark Resources* 25,800 419,250
St Mary Land & Exploration 5,000 168,750
Trico Marine Services* 14,300 237,737
Veritas DGC* 10,800 398,925
Vintage Petroleum 12,800 225,600
------------
2,681,555
------------
PAPER & FOREST PRODUCTS 1.14%
Kimberly-Clark Corp 10,962 572,079
Pope & Talbot 11,300 163,850
------------
735,929
------------
PUBLISHING 0.85%
Consolidated Graphics* 5,700 232,631
Pulitzer Publishing 5,266 312,669
------------
545,300
------------
REAL ESTATE INVESTMENT TRUST 6.69%
American General Hospitality 8,500 234,281
CBL & Associates Properties 26,700 659,156
Essex Property Trust 7,000 241,062
FelCor Suite Hotels 7,200 268,650
Gables Residential Trust SBI 13,200 360,525
Highwoods Properties* 7,000 253,312
Liberty Property Trust SBI 27,100 735,088
MGI Properties 11,800 295,000
Merry Land & Investment 15,200 350,550
<PAGE>
Patriot American Hospitality 22,499 576,537
Shurgard Storage Centers Class A 11,800 337,038
------------
4,311,199
------------
RESTAURANTS 1.91%
Brinker International* 15,400 257,950
CKE Restaurants 12,760 563,832
ShowBiz Pizza Time* 16,700 411,238
------------
1,233,020
------------
RETAIL 3.08%
Cash America International 20,100 238,687
Footstar Inc* 11,000 294,250
Pacific Sunwear of California* 3,900 112,125
Pier 1 Imports 21,450 501,394
Proffitts Inc* 19,800 581,625
Shopko Stores* 10,200 260,100
------------
1,988,181
------------
SAVINGS & LOAN 3.47%
Astoria Financial* 9,300 477,788
Commercial Federal 10,650 346,125
FirstFed Financial* 5,000 175,625
ONBANCorp Inc 3,500 244,125
Peoples Heritage Financial Group 9,400 404,200
Sovereign Bancorp 22,800 424,650
St Paul Bancorp 6,700 162,475
------------
2,234,988
------------
SERVICES 3.47%
Billing Information Concepts* 6,200 272,800
Caribiner International* 4,200 132,300
DeVRY Inc* 10,200 308,550
G&K Services Class A 13,600 574,600
Norrell Corp 10,200 202,725
True North Communications 30,100 746,856
------------
2,237,831
------------
<PAGE>
TELECOMMUNICATIONS -- CELLULAR &
WIRELESS 0.68%
Brightpoint Inc* 16,200 $ 272,362
CommNet Cellular* 4,600 165,313
------------
437,675
------------
TELECOMMUNICATIONS -- LONG DISTANCE 0.61%
Premiere Technologies* 15,800 395,000
------------
TEXTILE -- APPAREL MANUFACTURING 1.42%
Burlington Industries* 22,000 313,500
Kellwood Co 14,900 452,588
Oxford Industries* 4,900 147,000
------------
913,088
------------
TEXTILE -- HOME FURNISHINGS 0.91%
Springs Industries Class A 11,200 589,400
------------
TOBACCO 0.88%
DiMon Inc 19,000 390,687
Standard Commercial* 10,900 178,488
------------
569,175
------------
UTILITIES WATER 0.28%
E'town Corp 5,000 180,625
------------
TOTAL COMMON STOCKS
(Cost $54,931,373) 57,472,573
------------
SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS 10.85%
Repurchase Agreement with
State Street Bank & Trust Co
dated 1/30/1998 due 2/2/1998
at 5.530%, repurchased at
$6,996,223 (Collaterized by
US Treasury Bonds due 11/15/2015
at 9.875%, value $7,144,566)
(Cost $6,993,000) $ 6,993,000 6,993,000
------------
TOTAL INVESTMENT
SECURITIES AT VALUE 100.00%
(Cost $61,924,373)
(Cost for Income
Tax Purposes
$61,933,195) $ 64,465,573
============
* Security is non-income producing.
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Value Fund
Statement of Assets and Liabilities
January 31, 1998
UNAUDITED
ASSETS
Investment Securities at Value
(Cost $61,924,373)~ $ 64,465,573
Receivables:
Investment Securities Sold 386,000
Fund Shares Sold 166,420
Dividends and Interest 26,361
Prepaid Expenses 93,897
---------------
TOTAL ASSETS 65,138,251
---------------
LIABILITIES
Payables:
Custodian 7,008
Fund Shares Repurchased 1,392,539
Accrued Expenses and Other Payables 19,247
---------------
TOTAL LIABILITIES 1,418,794
---------------
Net Assets at Value $ 63,719,457
===============
NET ASSETS
Paid-in Capital* $ 60,862,524
Accumulated Undistributed Net
Investment Income 90,089
Accumulated Undistributed Net Realized Gain
on Investment Securities and Foreign Currency
Transactions 225,644
Net Appreciation of Investment Securities and
Foreign Currency Transactions 2,541,200
---------------
Net Assets at Value $ 63,719,457
===============
Net Asset Value, Offering and Redemption
Price per Share $11.44
========
~ Investment securities at cost and value at January 31, 1998 include a
repurchase agreement of $6,993,000.
* The Fund has 100 million authorized shares of common stock, par value of
$0.01 per share, of which 5,569,839 were outstanding at January 31, 1998.
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Value Fund
Statement of Operations
Six Months Ended January 31, 1998
UNAUDITED
INVESTMENT INCOME
INCOME
Dividends $ 363,228
Interest 135,425
---------------
TOTAL INCOME 498,653
---------------
EXPENSES
Investment Advisory Fees 245,467
Transfer Agent Fees 98,079
Administrative Fees 9,910
Custodian Fees and Expenses 19,364
Directors' Fees and Expenses 6,704
Professional Fees and Expenses 12,255
Registration Fees and Expenses 42,441
Reports to Shareholders 6,629
Other Expenses 2,662
---------------
TOTAL EXPENSES 443,511
Fees and Expenses Absorbed
by Investment Adviser (36,345)
---------------
NET EXPENSES 407,166
---------------
NET INVESTMENT INCOME 91,487
---------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities and
Foreign Currency Transactions 5,322,066
---------------
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions (4,307,378)
---------------
NET GAIN ON INVESTMENT SECURITIES 1,014,688
---------------
Net Increase in Net Assets from Operations $ 1,106,175
===============
See Notes to Financial Statements
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Value Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
January 31 July 31
------------ ------------
1998 1997
UNAUDITED
<S> <C> <C>
OPERATIONS
Net Investment Income $ 91,487 $ 375,616
Net Realized Gain on
Investment Securities and
Foreign Currency Transactions 5,322,066 9,253,370
Change in Net Appreciation of
Investment Securities and
Foreign Currency Transactions (4,307,378) 6,341,586
------------ ------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 1,106,175 15,970,572
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (11,915) (380,682)
Net Realized Gain on
Investment Securities and
Foreign Currency Transactions (14,103,068) (6,451,835)
------------ ------------
TOTAL DISTRIBUTIONS (14,114,983) (6,832,517)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 161,012,289 259,425,974
Reinvestment of Distributions 12,733,994 6,781,554
------------ ------------
173,746,283 266,207,528
Amounts Paid for Repurchases
of Shares (155,566,971) (263,489,815)
------------ ------------
NET INCREASE IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS 18,179,312 2,717,713
------------ ------------
Total Increase in Net Assets 5,170,504 11,855,768
NET ASSETS
<PAGE>
Beginning of Period 58,548,953 46,693,185
------------ ------------
End of Period (Including
Accumulated Undistributed Net
Investment Income of $79,284
and $10,517, respectively) $ 63,719,457 $ 58,548,953
============ ============
FUND SHARE TRANSACTIONS
Shares Sold 11,119,333 19,903,341
Shares Issued from Reinvestment
of Distributions 1,127,900 551,365
------------ ------------
12,247,233 20,454,706
Shares Repurchased 10,595,773 (20,367,666)
------------ ------------
Net Increase in Fund Shares 1,651,460 87,040
============ ============
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Value Fund
Notes to Financial Statements
UNAUDITED
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. The investment objective of the Fund is to
seek long- term capital growth. The Fund is registered under the Investment
Company Act of 1940 (the "Act") as a diversified, open-end management investment
company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales
price in the market where such securities are primarily traded. If last
sales prices are not available, securities are valued at the highest
closing bid price obtained from one or more dealers making a market for
such securities or by a pricing service approved by the Fund's board of
directors.
Foreign securities are valued at the closing price on the principal
stock exchange on which they are traded. In the event that closing prices
are not available for foreign securities, prices will be obtained
from the principal stock exchange at or prior to the close of the New
York Stock Exchange. Foreign currency exchange rates are determined daily
prior to the close of the New York Stock Exchange.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
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 are acquired. 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
agreements including accrued interest. In the event of default on the
<PAGE>
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. 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 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 investment securities includes fluctuations
from currency exchange rates and fluctuations in market value.
The Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in
foreign exchange rates. The Fund does not hold short-term forward foreign
currency contracts for trading purposes. The Fund may hold foreign currency
in anticipation of settling foreign security transactions and not for
investment purposes.
D. FEDERAL AND STATE TAXES -- The Fund has complied, and continues to
comply, with the provisions of the Internal Revenue Code applicable to
regulated investment companies and, accordingly, has made or intends to
make sufficient distributions of net investment income and net realized
capital gains, if any, to relieve it from all federal and state income
taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and
distributions of net realized short-term capital gains are, for federal
income tax purposes, taxable as ordinary income to shareholders.
Investment income received from foreign sources may be subject to
foreign withholding taxes. Dividend and interest income is shown gross
of foreign withholding taxes in the accompanying financial statements.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- Dividends and
distributions to shareholders are recorded by the Fund on the ex
dividend/distribution date. The Fund distributes net realized capital
gains, if any, to its shareholders at least annually, if not offset by
capital loss carryovers. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for foreign currency
transactions, nontaxable dividends, net operating losses and expired
capital loss carryforwards.
<PAGE>
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term
forward foreign currency contracts in connection with planned purchases or
sales of securities as a hedge against fluctuations in foreign exchange
rates pending the settlement of transactions in foreign securities. A
forward foreign currency contract is an agreement between contracting
parties to exchange an amount of currency at some future time at an agreed
upon rate. These contracts are marked-to-market daily and the related
appreciation or depreciation of the contracts is presented in the Statement
of Assets and Liablities.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group,
Inc. ("IFG") serves as the Fund's investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee is based on the annual
rate of 0.75% of average net assets.
In accordance with a Sub-Advisory Agreement between IFG and INVESCO
Management & Research, Inc. ("IMR"), an affiliate of IFG, investment decisions
of the Fund are made by IMR. Fees for such sub-advisory services are paid by
IFG.
In accordance with an Administrative Agreement, the Fund pays IFG an annual
fee of $10,000, plus an additional amount computed at an annual rate of 0.015%
of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG receives a transfer agent fee at an annual rate of $20.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
IFG and IMR have voluntarily agreed, in some instances, to absorb certain
fees and expenses incurred by the Fund.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months
ended January 31, 1998, the aggregate cost of purchases and proceeds from sales
of investment securities (excluding all U.S. Government securities and
short-term securities) were $52,280,109 and $46,528,312, respectively.
There were no purchases or sales of U.S. Government securities.
NOTE 4 -- APPRECIATION AND DEPRECIATION. At January 31, 1998, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $6,225,495 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $3,693,117, resulting in net
appreciation of $2,532,378.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IMR.
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan are based on an annual rate equal to 40% of the retainer fee at the time of
retirement.
<PAGE>
Pension expenses for the six months ended January 31, 1998, included in
Directors' Fees and Expenses in the Statement of Operations were $656. Unfunded
accrued pension costs of $1,607 and pension liability of $3,615 are included in
Prepaid Expenses and Accrued Expenses, respectively, in the Statement of Assets
and Liabilities.
NOTE 6 -- LINE OF CREDIT. The Fund has available a Redemption Line of
Credit Facility ("LOC"), from a consortium of national banks, to be used for
temporary or emergency purposes to fund redemptions of investor shares. The LOC
permits borrowings to a maximum of 10% of the Net Assets at Value of the Fund.
The Fund agrees to pay annual fees and interest on the unpaid principal balance
based on prevailing market rates as defined in the agreement. At January 31,
1998, there were no such borrowings.
<PAGE>
INVESCO Diversified Funds, Inc. -- Small Company Value Fund
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six Months Period
Ended Ended
January 31 Year Ended July 31 July 31
-------------- ------------------------------------- --------
1998 1997 1996 1995 1994^
UNAUDITED
<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 0.02 0.09 0.08 0.05 0.06
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.11 4.10 0.68 2.05 (0.28)
-------------- ------------------------------------- --------
Total from Investment Operations 0.13 4.19 0.76 2.10 (0.22)
-------------- ------------------------------------- --------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income+ 0.00 0.09 0.08 0.09 0.02
Distributions from Capital Gains 3.63 1.35 0.26 0.00 0.00
-------------- ------------------------------------- --------
Total Distributions 3.63 1.44 0.34 0.09 0.02
-------------- ------------------------------------- --------
Net Asset Value-- End of Period $ 11.44 $ 14.94 $ 12.19 $ 11.77 $ 9.76
============== ===================================== ========
TOTAL RETURN 1.18%* 36.97% 6.47% 21.64% (2.21%)*
<PAGE>
RATIOS
Net Assets -- End of Period
($000 Omitted) $63,719 $58,549 $46,693 $40,071 $13,474
Ratio of Expenses to Average
Net Assets# 0.63%* 1.25%@ 1.09%@ 1.00% 1.00%~
Ratio of Net Investment Income to
Average Net Assets# 0.14%* 0.75% 0.61% 0.84% 1.20%~
Portfolio Turnover Rate 79%* 147% 156% 73% 55%*
Average Commission Rate Paid^^ $0.0600* $0.0582 -- -- --
^ From December 1, 1993, commencement of investment operations, to July 31,
1994.
+ Distributions from net investment income for 1998 aggregated less than $0.01
on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG and IMR for the
six months ended January 31, 1998, the years ended July 31, 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 0.68% (not annualized), 1.35%, 1.09%, 1.32% and 1.64% (annualized),
respectively, and ratio of net investment income to average net assets
would have been 0.09% (not annualized), 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.
</TABLE>
<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.
