August 31, 2000
ANNUAL REPORT
INVESCO Advantage Series Funds, Inc.
ADVANTAGE FUND
"IN MANAGING THE FUND, WE CAN CALL ON ADVANCED MANAGEMENT TECHNIQUES...THAT
CAN POTENTIALLY HELP THE FUND PROFIT FROM MARKET CHANGES-- BOTH POSITIVE AND
NEGATIVE." SEE PAGE 3
[INVESCO ICON] INVESCO FUNDS (R)
A Member of the AMVESCAP Group
<PAGE>
WELCOME TO INVESCO ADVANTAGE FUND
FELLOW SHAREHOLDER:
Long-term investors know that the investment road has both smooth stretches and
rough patches. Recent market volatility, following a sustained period of stellar
returns, brought this point swiftly home once again.
How can you best invest for long-term growth in these changing times? You've
taken one important step by investing in INVESCO's newest aggressive growth
fund: Advantage Fund. What's special about this fund is that the manager may use
leverage as well as alternative investments to maximize the potential to
participate in up markets while limiting downside risk.
When the market is charging forward, Advantage Fund is able to concentrate on
what we believe are rapidly growing companies with the most potential. And when
the market retreats, the fund may minimize the bumps in the road through short
selling and other investment techniques intended to buffer against down market
trends. Of course, there is no guarantee the fund will meet its objectives.
o FOCUS ON GROWTH. Advantage Fund is an aggressive growth fund designed to
invest in rapidly growing companies that perform well in rising markets.
Through the use of leverage strategies, the fund can further enhance the
potential of these investments. The fund also participates in initial
public offerings and private placements to get in on the ground floor of
exciting new investment opportunities.
o DOWNSIDE PROTECTION. Equally important, Advantage Fund has the flexibility to
limit downside risk in falling markets through sophisticated short-selling
and hedging strategies.
o BEST IDEAS. As an all-cap fund, Advantage Fund invests in the best ideas of
INVESCO's Growth and Sector investment teams, from aggressive start-ups
to established market leaders. The fund focuses on companies with
competitive advantages that may lead to above-average sales and earnings
growth. This advantage might be innovative technology, promising
distribution methods, talented and insightful management teams, and/or
an ability to capitalize on powerful market or demographic trends.
I welcome you to Advantage Fund and invite you to review our first annual
report. This debut report is somewhat special: Since the fund is so new, we
focus more on discussing Fund Manager Tom Samuelson's investment strategy and
approach, rather than reporting on past performance. I hope you find this report
useful and informative.
Sincerely,
/s/ Mark H. Williamson
----------------------
Mark H. Williamson
Chairman and CEO, INVESCO Funds
<PAGE>
"WHILE WE ATTEMPT TO PROFIT IN ABSOLUTE TERMS FROM OUR SHORT POSITIONS BY BUYING
THEM BACK AT LOWER PRICES, THESE SHORT POSITIONS CAN ALSO POTENTIALLY OFFSET
DECLINES IN OUR LONG POSITIONS THAT MAY OCCUR DURING MARKET DOWNTURNS." - PAGE 3
TABLE OF CONTENTS
LETTER FROM THE CHAIRMAN.........................................1
A CONVERSATION WITH PORTFOLIO MANAGER TOM SAMULESON..............3
10 LARGEST COMMON STOCK HOLDINGS.................................3
INVESTMENT HOLDINGS..............................................9
FINANCIAL STATEMENTS............................................14
NOTES TO FINANCIAL STATEMENTS...................................17
FINANCIAL HIGHLIGHTS............................................23
INVESCO ADVANTAGE SERIES FUNDS, INC.
TOTAL RETURN
PERIOD ENDED 8/31/00(1)
Cumulative Return
Fund (Inception) Since Inception*
ADVANTAGE FUND - CLASS A (8/00) 2.40%
ADVANTAGE FUND - CLASS A OFFER PRICE (8/00) 2.46%
ADVANTAGE FUND - CLASS B (8/00) 2.40%
ADVANTAGE FUND - CLASS C (8/00) 2.40%
(1) PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S
SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED.
<PAGE>
QUESTIONS & ANSWERS
AN INTERVIEW WITH ADVANTAGE FUND MANAGER TOM SAMUELSON
TOM, WHAT MAKES ADVANTAGE FUND UNIQUE?
TOM SAMUELSON: Advantage Fund is a non-diversified, aggressive growth fund that
primarily invests in equities and alternative investment vehicles. What makes
Advantage Fund unique is the toolbox of investment strategies we have at our
disposal. Most mutual funds, because of the way they are structured, limit the
strategies their managers can employ. Not so with Advantage Fund. In managing
the fund, we can call on advanced asset management techniques that historically
were only available to hedge funds and institutions. These techniques can
potentially help the fund profit from market changes -- both positive and
negative.
CAN YOU DESCRIBE THESE ALTERNATIVE INVESTMENT STRATEGIES IN MORE DETAIL?
TOM SAMUELSON: These strategies may include borrowing money -- that is the use
of leverage -- as well as short selling and using derivatives. In addition,
Advantage Fund is an all-cap fund, which means we are free to invest in the best
growth companies we can find, from aggressive start-ups to established market
leaders, regardless of size. We can also take part in initial public offerings
(IPOs) and private placements, which will enable us to get in on the ground
floor with exciting, new growth companies early in their life cycles.
Our mandate also allows us to take concentrated positions, investing up to
one-fourth of fund assets in a single holding. And because the fund is
non-diversified, we may invest a significant portion of assets in a
comparatively small number of economic sectors. This flexibility allows us to
act decisively when we find an opportunity that we believe offers superior
growth potential.
HOW MUCH LEVERAGE CAN THE FUND USE?
TOM SAMUELSON: The fund can borrow up to a third of its net assets. So, if the
fund had $100 million dollars to invest, we could conceivably purchase $133
million worth of securities through the use of leverage.
HOW WOULD YOU DESCRIBE YOUR OVERALL INVESTMENT STRATEGY?
TOM SAMUELSON: Like all INVESCO growth funds, Advantage Fund adheres to our
classic growth philosophy. This disciplined strategy uses bottom-up research and
fundamental analysis to identify growth companies with accelerating and
sustainable revenues, earnings, and cash flow.
WHAT PERCENTAGE OF THE PORTFOLIO WILL TYPICALLY BE IN SHORT POSITIONS?
TOM SAMUELSON: When the fund sells a stock "short," it sells borrowed shares
with the expectation of buying them back at a lower future price. Short
positions may account for up to 50% of the Advantage Fund portfolio, but, under
normal circumstances, will average around 20% of net assets, accounting for
approximately 20 to 30 stocks. Good short-selling opportunities include
companies that we believe are overvalued or exhibit deteriorating fundamentals.
While we attempt to profit in absolute terms from our short positions by buying
them back at lower prices, these short positions can also potentially offset
declines in our long positions that may occur during market downturns.
<PAGE>
WILL YOUR EXPERIENCE RUNNING HEDGE FUNDS HELP ADVANTAGE FUND?
TOM SAMUELSON: My hedge fund experience should give me an advantage when it
comes to capitalizing on the alternative investment strategies at our disposal.
I have also completed the extensive derivatives training program at Swiss Bank,
which should help in the risk management of the fund.
WHAT OTHER INVESCO RESOURCES WILL YOU CALL ON IN MANAGING ADVANTAGE FUND?
TOM SAMUELSON: A major competitive strength I have as manager of the Advantage
Fund is access to INVESCO's growth and sector fund expertise. I am backed by the
experience and capabilities of the entire INVESCO Growth Team. I can also
capitalize on the insight of INVESCO's Sector Team. Our sector fund managers are
industry veterans, and in many cases have more than 20 years of experience in
their given sector. These managers will provide sector-specific research and
analysis, and will be an invaluable resource as we make decisions about taking
concentrated holdings in potentially high-performing economic sectors.
WHAT TYPE OF INVESTOR SHOULD CONSIDER THIS FUND?
TOM SAMUELSON: Advantage Fund is designed for aggressive growth investors who
want the potential for strong returns in all market environments and are
comfortable with the use of leverage, selective short positions, and other
alternative investment strategies.
THERE IS NO GUARANTEE THAT THE FUND WILL MEET ITS INVESTMENT OBJECTIVES.
FUND MANAGEMENT
TOM SAMUELSON, CFA
VICE PRESIDENT
INVESCO FUNDS GROUP
Tom Samuelson has 15 years of investment experience serving as portfolio manager
for both mutual funds and hedge portfolios. Previously, Tom was President of
Denver Energy Advisors and Managing Director of Eastgate Management, both energy
hedge funds. He also completed the prestigious Swiss Bank Derivatives Program.
Tom managed INVESCO's Energy Fund from 1995 to 1996. He is a Chartered Financial
Analyst and received his MBA and bachelor's degree from the University of Tulsa.
"ADVANTAGE FUND IS AN ALL-CAP FUND, WHICH MEANS WE ARE FREE TO INVEST IN
THE BEST GROWTH COMPANIES WE CAN FIND, FROM AGGRESSIVE START-UPS TO ESTABLISHED
MARKET LEADERS, REGARDLESS OF SIZE." -- TOM SAMUELSON
<PAGE>
INVESTMENT TOOLS TO SEEK PERFORMANCE IN ANY MARKET ENVIRONMENT
Here are the primary investment tools the fund manager can employ in managing
Advantage Fund to enhance return.
o ALL-CAP FLEXIBILITY: As an all-cap fund, Advantage Fund can invest in
companies of any size, from aggressive start-ups to established market
leaders. This flexibility enables the manager to pursue rapidly growing
companies -- whether small, mid-size or large. As an investor, you should
know that investing in smaller companies may entail greater risks because
their security prices tend to fluctuate more rapidly than large, well-
established companies.
o CONCENTRATION OF ASSETS: Occasionally, opportunities come along that are
especially compelling. Advantage Fund management can act decisively when
they see such an opportunity, placing up to one-fourth of the portfolio in
a single issue. Because the fund is non-diversified, it may invest a
significant portion of its assets in the securities of companies doing
business in a comparatively small number of economic sectors that the
manager believes are the most attractive. Of course, the value of the
fund's shares may vary, and the fund may be subject to greater market and
credit risk than a more diversified fund.
--------------------------------------------------------------------------------
TOP 10 LONG POSITIONS
% of Total Net Assets as of 8/31/00
--------------------------------------------------------------------------------
CIENA Corp...............................................................3.65%
Juniper Networks.........................................................3.52%
Applied Micro Circuits...................................................3.34%
SDL Inc..................................................................3.27%
Corning Inc..............................................................2.70%
VeriSign Inc.............................................................2.45%
Sycamore Networks........................................................2.26%
Cisco Systems............................................................2.26%
i2 Technologies..........................................................2.09%
TranSwitch Corp..........................................................1.98%
--------------------------------------------------------------------------------
o LEVERAGE: Advantage Fund can borrow money to buy securities, a practice known
as "leveraging." We believe that the judicious use of leverage will enable
the fund to deliver full up-market participation with limited downside
risk. Investors should realize, however, that the use of leverage could
cause the net asset value of the fund's shares to decrease faster than if
the fund had not used leverage.
o SHORT SALES: Advantage Fund management can borrow and sell stocks with the
promise to make delivery of the shares at some later time. Short selling is
also a form of leverage, which may allow Advantage Fund to gain if a given
stock's price falls; in other words, the fund can profit from investing in
shares that are overvalued -- a particular advantage in retreating markets.
However, the fund may also be required to pay a premium to borrow the
security, and just as there is no guarantee a stock purchased will rise,
there is no guarantee a stock "shorted" will fall.
o INITIAL PUBLIC OFFERINGS AND PRIVATE PLACEMENTS: Advantage Fund can get in on
the ground floor with exciting, new companies. IPOs are registered
companies, typically trading on a public exchange, while companies
purchased through private placements are not yet registered to offer
shares of stock to the public. While there is no guarantee that the IPO
market will continue to be robust, or that such securities will always
produce positive performance, IPO investments may significantly enhance the
fund's returns.
<PAGE>
o OPTIONS: Through use of options, such as puts and calls, Advantage Fund will
own the right to sell or buy (puts and calls) stocks at a particular time
and price, a valuable risk management tool. The principal risk of
investing in derivatives, such as options, is that the fluctuations in their
values may not correlate perfectly with the overall securities markets
and may be more sensitive to interest rate changes and market price
fluctuations than others. Further, the use of options may increase market
risk for the fund.
--------------------------------------------------------------------------------
TOP 5 SHORT POSITIONS
% OF TOTAL NET ASSETS AS OF 8/31/00
--------------------------------------------------------------------------------
Emmis Communications Class A Shrs........................................(1.08%)
Home Depot...............................................................(0.79%)
United Therapeutics......................................................(0.72%)
Comcast Corp Special Class A Shrs........................................(0.61%)
Cox Communications Class A Shrs..........................................(0.06%)
--------------------------------------------------------------------------------
ADVANTAGE FUND
SECTOR DIVERSIFICATION
AS OF 8/31/00
[PIE CHART]
% OF TOTAL ASSETS
o Technology.............................47.18%
o Energy.................................11.70%
o Finance.................................6.86%
o Capital Goods...........................4.69%
o Utilities...............................3.05%
o Communication Services..................2.98%
o Consumer Staples........................2.76%
o Health Care.............................1.68%
o Consumer Cyclicals......................0.42%
o Cash & Cash Equivalents................18.68%
Line Graph: INVESCO ADVANTAGE FUND
GROWTH OF $10,000(2)
This line graph compares the value of a $10,000 investment in INVESCO
Advantage Fund - Class A at the offer price and the value of a $10,000
investment in INVESCO Advantage Fund - Class A, B and C to the value of a
$10,000 investment in the Russell 3000 Index, assuming in each case reinvestment
of all dividends and capital gain distributions, for the period from inception
(8/25/00) through 8/31/00.
Advantage Fund Advantage Fund
Class A Offer Price Class A, B and C Russell 3000
8/25/00 $10,000 $10,000 $10,000
8/31/00 10,246 10,240 10,129
(2) PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S
SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPH ILLUSTRATES
THE VALUE OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. THE CHART AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S
OPERATING EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES WHICH, WOULD HAVE
LOWERED ITS PERFORMANCE.
THE RUSSELL 3000 INDEX CONSISTS OF 3,000 STOCKS, PRIMARILY ISSUED BY U.S.
COMPANIES, THAT INCLUDES ISSUES OF ALL SIZES, FROM LARGE TO SMALL CAPITALIZATION
COMPANIES. THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT
MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND.
AN IMPORTANT WORD ABOUT MARKET RISK
Although the fund is subject to a number of risks that could affect its
performance, its primary risk, like all stock funds, is market risk. This is the
risk that the price of securities in the fund's portfolio will rise and fall due
to price movements in the securities markets. Moreover, the securities in the
fund's portfolio may increase or decrease in value more than the overall
securities markets.
<PAGE>
YOUR FUND'S REPORT
THE FED KEPT INTEREST RATES STEADY IN AUGUST, ELICITING FAVORABLE REACTIONS FROM
THE EQUITY AND BOND MARKETS.
MARKET HEADLINES
SEPTEMBER 1999 TO AUGUST 2000
The fiscal year ended August 31, 2000, saw both the economy and business profits
continue to steam ahead, although the equity markets finally began to slow from
the torrid pace they had maintained for the previous several years. The largest
story on the major stock exchanges was undoubtedly the spectacular run-up of
technology stocks in the fall of 1999 and winter of 2000, followed by an equally
dramatic correction in the spring. But the major story for the bond markets was
the tightening cycle engineered by the Federal Reserve which began back in June
1999 -- and may have wound down as the period came to a close.
With the world economic recovery demonstrably on solid footing, the U.S. economy
expanding at a rapid pace, and consumers spending freely, the Fed began to worry
that the "Goldilocks economy" (not too hot, and not too cold) had finally become
too warm. Rising oil and gas prices brought about by steep demand, tight
inventories, and new-found OPEC resolve, meant that consumers and businesses
were paying more for heat, electricity, and gasoline. While the emerging markets
crisis of 1997-1998 had helped keep commodity and import prices low in the
United States, the exact opposite was occurring now that global growth had come
back strongly. As unemployment reached 30-year lows, wage gains became more
generous, implying that costs may have to be passed on to consumers.
All these signs pointed to a substantial pickup in inflation on the consumer
level, but actual evidence of prices spiraling upward was scanty. While
inflation steadied after declining for several quarters, it remained comfortably
between 2% and 3% -- hardly levels that should keep central bankers awake at
night. Most analysts credited the remarkably strong increases in productivity
with keeping inflation at bay.
Still, the Fed gave clear notice that it would act preemptively to stave
off inflation, raising rates before price increases showed up in most goods and
services. Having begun with a quarter-point nudge upward in June 1999, the
central bank followed with five more interest rate hikes over the ensuing
months, bringing the target federal funds rate up from 4.75% to 6.50%. As the
increases were announced, market interest rates -- the rates that individuals
actually pay to borrow money -- moved up in tandem. A curious exception played
out in the Treasury market. Budget surpluses led the government to borrow less,
creating a scarcity in the market for 30-year Treasury bonds and driving yields
lower.
By August 2000, however, it began to appear that the Fed's medicine might have
solved the problem. The highest mortgage rates in several years seemed to cool
off new home construction. Consumer confidence, while still quite high, also
showed signs of moderation. Consumer spending fell as well. Reacting to this
news -- and perhaps reluctant to do anything to intervene in the upcoming
elections -- the Fed kept interest rates steady in August, eliciting favorable
reactions from the equity and bond markets.
As always, the jury is still out on which direction interest rates would take in
the future. Pulled in two directions by the strong global economy and continuing
domestic growth on the one hand, and the productivity safety valve of the New
Economy on the other, inflation seemed ready to head in any direction. Should it
head in the right one, however, and with the economy on track and some of the
excesses bled out of the stock market, many look forward to the bond and stock
markets resuming their upward direction.
<PAGE>
[This page intentionally left blank.]
<PAGE>
TOP TEN HOLDINGS
TEN LARGEST COMMON STOCK HOLDINGS
INVESCO Advantage Series Funds, Inc.
August 31, 2000
DESCRIPTION VALUE
--------------------------------------------------------------------------------
ADVANTAGE FUND
CIENA Corp $2,216,875
Juniper Networks 2,137,500
Applied Micro Circuits 2,029,375
SDL Inc 1,986,563
Corning Inc 1,639,687
VeriSign Inc 1,491,563
Sycamore Networks 1,375,000
Cisco Systems 1,372,500
i2 Technologies 1,268,906
TranSwitch Corp 1,203,750
Composition of holdings is subject to change.
<PAGE>
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO Advantage Series Funds, Inc.
August 31, 2000
SHARES,
PRINCIPAL AMOUNT
OR NUMBER OF
% DESCRIPTION CONTRACTS VALUE
--------------------------------------------------------------------------------
Advantage Fund
154.92 INVESTMENT SECURITIES HELD
85.90 COMMON STOCKS
1.75 BANKS
Bank of New York 5,000 $ 262,187
Northern Trust 2,500 210,781
State Street 5,000 588,750
================================================================================
1,061,718
0.65 BEVERAGES
Anheuser-Busch Cos 5,000 394,062
================================================================================
1.09 BROADCASTING
General Motors Class H Shrs(a) 5,000 165,625
Pegasus Communications(a) 10,000 497,500
================================================================================
663,125
8.65 COMMUNICATIONS-- EQUIPMENT & MANUFACTURING
Alcatel Sponsored ADR Representing Ord Shrs 5,000 414,375
Avanex Corp(a) 7,500 1,136,016
CIENA Corp(a)(b) 10,000 2,216,875
Corvis Corp(a) 5,000 519,062
Nortel Networks(c) 5,000 407,813
Polycom Inc(a) 5,000 561,875
================================================================================
5,256,016
23.05 COMPUTER RELATED
BEA Systems(a) 10,000 680,625
Business Objects SA Sponsored ADR
Representing Ord Shrs(a) 5,000 572,500
Check Point Software Technologies Ltd(a) 5,000 729,063
Cisco Systems(a)(c) 20,000 1,372,500
Inktomi Corp(a) 7,500 977,812
Intuit Inc(a) 10,000 598,750
i2 Technologies(a) 7,500 1,268,906
Juniper Networks(a)(b) 10,000 2,137,500
Mercury Interactive(a) 5,000 610,938
Network Appliance(a) 7,500 877,500
Oracle Corp(a) 10,000 909,375
Palm Inc(a) 20,000 880,000
Sycamore Networks(a)(b) 10,000 1,375,000
TIBCO Software(a)(b) 10,000 1,019,375
================================================================================
14,009,844
2.07 ELECTRIC UTILITIES
AES Corp(a) 15,000 956,250
Southern Co 10,000 299,375
================================================================================
1,255,625
2.23 ELECTRICAL EQUIPMENT
Methode Electronics Class A Shrs 5,000 300,625
Molex Inc 20,000 1,056,250
================================================================================
1,356,875
<PAGE>
SHARES,
PRINCIPAL AMOUNT
OR NUMBER OF
% DESCRIPTION CONTRACTS VALUE
--------------------------------------------------------------------------------
13.22 ELECTRONICS - SEMICONDUCTOR
Applied Micro Circuits(a)(b) 10,000 $ 2,029,375
Intel Corp 10,000 748,750
PMC-Sierra Inc(a)(b) 5,000 1,180,000
SDL Inc(a) 5,000 1,986,563
TranSwitch Corp(a) 20,000 1,203,750
Vitesse Semiconductor(a) 10,000 888,125
================================================================================
8,036,563
1.49 ENTERTAINMENT
Gemstar-TV Guide International(a) 10,000 902,500
================================================================================
1.21 FINANCIAL
Citigroup Inc 2,500 145,937
Edwards (A G) Inc 2,500 130,000
Providian Financial 2,500 287,344
Sun Life Financial Services of Canada(a) 8,100 170,272
================================================================================
733,553
0.93 GAMING
Harrah's Entertainment(a) 20,000 567,500
================================================================================
1.73 HEALTH CARE DRUGS - PHARMACEUTICALS
ALZA Corp(a) 10,000 756,250
Pharmacia Corp(c) 5,000 292,813
================================================================================
1,049,063
0.68 HEALTH CARE RELATED
Baxter International(c) 5,000 416,250
================================================================================
0.73 INSURANCE
American International Group 5,000 445,625
================================================================================
3.17 INVESTMENT BANK/BROKER FIRM
Goldman Sachs Group 5,000 640,312
Legg Mason 15,000 791,250
Morgan Stanley Dean Witter & Co 2,500 268,906
Price (T Rowe) Associates 5,000 226,250
================================================================================
1,926,718
2.70 MANUFACTURING
Corning Inc(b) 5,000 1,639,687
================================================================================
0.98 NATURAL GAS
Dynegy Inc 10,000 450,000
El Paso Energy 2,500 145,625
================================================================================
595,625
11.27 OIL & GAS RELATED
Alberta Energy Ltd 5,000 184,375
BJ Services(a)(b) 10,000 670,000
Canadian Hunter Exploration Ltd(a) 10,000 247,508
Canadian Natural Resources Ltd(a) 25,000 805,249
Cooper Cameron(a)(b) 5,000 389,063
ENSCO International(b) 10,000 398,750
Genesis Exploration Ltd(a) 50,000 372,957
<PAGE>
SHARES,
PRINCIPAL AMOUNT
OR NUMBER OF
% DESCRIPTION CONTRACTS VALUE
--------------------------------------------------------------------------------
Gulf Island Fabrication(a) 15,000 $ 277,500
Nabors Industries(a)(b) 10,000 475,625
Noble Drilling(a)(b) 10,000 485,000
Pride International(a) 10,000 246,250
Rio Alto Exploration Ltd(a) 20,000 397,369
Santa Fe International 10,000 393,125
SEACOR SMIT(a) 10,000 455,625
Suncor Energy 20,000 455,000
Transocean Sedco Forex(b) 10,000 597,500
================================================================================
6,850,896
1.08 RETAIL
Walgreen Co 20,000 657,500
================================================================================
4.23 SERVICES
America Online(a) 5,000 293,125
Ariba Inc(a) 5,000 786,875
VeriSign Inc(a) 7,500 1,491,563
================================================================================
2,571,563
0.68 TELECOMMUNICATIONS - CELLULAR & WIRELESS
Netro Corp(a) 5,000 413,125
================================================================================
1.13 TELECOMMUNICATIONS-- LONG DISTANCE
Exodus Communications(a) 10,000 684,375
================================================================================
1.18 TELEPHONE
Amdocs Ltd(a) 10,000 714,375
================================================================================
TOTAL COMMON STOCKS (COST $50,652,884) 52,202,183
================================================================================
67.89 SHORT-TERM INVESTMENTS
57.59 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Discount Notes, 6.530%,
9/1/2000 (Amortized Cost $35,000,000) $35,000,000 35,000,000
================================================================================
4.77 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund 6.425% (Cost $2,901,019) 2,901,019 2,901,019
================================================================================
5.53 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 8/31/2000 due 9/1/2000 at 6.500%,
repurchased at $3,359,606 (Collateralized
by US Treasury Notes, due 5/15/2001 at
8.000%, value $3,431,011)(Cost
$3,359,000) $ 3,359,000 3,359,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(Amortized Cost $41,260,019) 41,260,019
================================================================================
1.13 OPTIONS PURCHASED
0.41 CALLS
0.41 COMPUTER RELATED
Cisco Systems, 10/21/2000, $62.50 300 251,250
================================================================================
<PAGE>
SHARES,
PRINCIPAL AMOUNT
OR NUMBER OF
% DESCRIPTION CONTRACTS VALUE
--------------------------------------------------------------------------------
0.72 PUTS
0.72 OIL & GAS RELATED
Oil Service Sector Index, 10/21/2000,
$135.00 500 $ 437,500
================================================================================
TOTAL OPTIONS PURCHASED (Cost $734,275) 688,750
================================================================================
TOTAL INVESTMENT SECURITIES HELD (Cost $92,647,178) 94,150,952
================================================================================
(2.50) OPTIONS WRITTEN
(2.50) CALLS
(0.38) COMMUNICATIONS - EQUIPMENT & MANUFACTURING
CIENA Corp, 10/21/2000, $220.00 (100) (233,750)
================================================================================
(0.97) COMPUTER RELATED
Juniper Networks, 10/21/2000, $190.00 (100) (358,750)
Sycamore Networks, 9/16/2000, $140.00 (100) (83,750)
TIBCO Software, 10/21/2000, $95.00 (100) (146,250)
================================================================================
(588,750)
(0.60) ELECTRONICS-- SEMICONDUCTOR
Applied Micro Circuits, 10/21/2000, $200.00 (100) (240,000)
PMC-Sierra Inc, 10/21/2000, $240.00 (50) (123,125)
================================================================================
(363,125)
(0.25) MANUFACTURING
Corning Inc, 10/21/2000, $320.00 (50) (152,500)
================================================================================
(0.30) OIL & GAS RELATED
BJ Services, 9/16/2000, $70.00 (100) (16,250)
Cooper Cameron, 9/16/2000, $80.00 (50) (13,750)
ENSCO International, 10/21/2000, $40.00 (100) (31,250)
Nabors Industries, 10/21/2000, $47.50 (100) (38,750)
Noble Drilling, 10/21/2000, $47.50 (100) (41,250)
Transocean Sedco Forex, 10/21/2000, $60.00 (100) (42,500)
================================================================================
(183,750)
TOTAL OPTIONS WRITTEN (Proceeds $1,332,193) (1,521,875)
================================================================================
(3.27) INVESTMENT SECURITIES SOLD SHORT - COMMON STOCKS
(0.72) BIOTECHNOLOGY - HEALTH CARE
United Therapeutics(a) (5,100) (440,433)
================================================================================
(1.08) BROADCASTING
Emmis Communications Class A Shrs(a) (20,000) (656,250)
================================================================================
(0.68) CABLE
Comcast Corp Special Class A Shrs(a) (10,000) (372,500)
Cox Communications Class A Shrs(a) (1,100) (39,119)
================================================================================
(411,619)
(0.79) RETAIL
Home Depot (10,000) (480,625)
================================================================================
TOTAL INVESTMENT SECURITIES SOLD SHORT
(Proceeds $1,935,041) (1,988,927)
================================================================================
149.15 TOTAL INVESTMENTS (Cost $89,379,944)(d) $90,640,150
================================================================================
<PAGE>
SHARES,
PRINCIPAL AMOUNT
OR NUMBER OF
% DESCRIPTION CONTRACTS VALUE
--------------------------------------------------------------------------------
(49.15) OTHER LIABILITIES IN EXCESS OF ASSETS $(29,867,160)
--------------------------------------------------------------------------------
100.00 NET ASSETS $ 60,772,990
================================================================================
(a) Security is non-income producing.
(b) Security has been designated as collateral for written options.
(c) Security has been designated as collateral for short sales.
(d) Also represents cost for income tax purposes.
See Notes to Financial Statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO Advantage Series Funds, Inc.
August 31, 2000
ADVANTAGE
FUND
--------------------------------------------------------------------------------
ASSETS
Investment Securities Held at Value (Cost $92,647,178)(a) $ 94,150,952
Cash 523,741
Deposit with Broker for Securities Sold Short 1,283,791
Foreign Currency (Cost $658,221) 659,693
Receivables:
Investment Securities Sold 1,864,133
Fund Shares Sold 389,864
Dividends and Interest 4,083
Appreciation on Forward Foreign Currency Contracts 5,495
================================================================================
TOTAL ASSETS 98,881,752
================================================================================
LIABILITIES
Options Written at Value (Premiums Received $1,332,193) 1,521,875
Investment Securities Sold Short at Value (Proceeds $1,935,041) 1,988,927
Payables:
Investment Securities Purchased 34,589,233
Fund Shares Repurchased 5,543
Accrued Distribution Expenses
Class A 1,105
Class B 1,163
Class C 904
Accrued Expenses and Other Payables 12
================================================================================
TOTAL LIABILITIES 38,108,762
================================================================================
NET ASSETS AT VALUE $ 60,772,990
================================================================================
NET ASSETS
Paid-in Capital(b) $ 59,352,306
Accumulated Undistributed Net Investment Income 18,664
Accumulated Undistributed Net Realized Gain on Investment
Securities, Foreign Currency Transactions, Securities
Sold Short and Written Options 138,431
Net Appreciation of Investment Securities, Foreign Currency
Transactions, Securities Sold Short and Written Options 1,263,589
================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 60,772,990
================================================================================
NET ASSETS AT VALUE:
Class A $ 41,413,252
================================================================================
Class B $ 10,878,181
================================================================================
Class C $ 8,481,557
================================================================================
Shares Outstanding
Class A 4,043,979
Class B 1,062,481
Class C 828,354
================================================================================
NET ASSET VALUE PER SHARE:
Class A
Redemption Price per Share $ 10.24
Offering price per Share (Maximum sales charge of 5.50%) $ 10.84
Class B, Offering and Redemption Price per Share
(excludes applicable contingent deferred sales charge) $ 10.24
Class C, Offering and Redemption Price per Share
(excludes applicable contingent deferred sales charge) $ 10.24
================================================================================
<PAGE>
(a)Investment securities at cost and value at August 31, 2000 includes a
repurchase agreement of $3,359,000.
(b)The Fund has one billion authorized shares of common stock, par value $0.01
per share. Of such shares, 200 million have been allocated to each Class.
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
INVESCO Advantage Series Funds, Inc.
Period Ended August 31, 2000 (Note 1)
ADVANTAGE
FUND
--------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 3,219
Dividends from Affiliated Investment Companies 1,019
Interest 28,924
Foreign Taxes Withheld (14)
================================================================================
TOTAL INCOME 33,148
================================================================================
EXPENSES
Investment Advisory Fees 9,732
Distribution Expenses
Class A 1,105
Class B 1,163
Class C 904
Other Expenses 480
================================================================================
TOTAL EXPENSES 13,384
================================================================================
NET INVESTMENT INCOME 19,764
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Foreign Currency Transactions (1,100)
Securities Sold Short 180,906
Written Options (42,475)
================================================================================
Total Net Realized Gain 137,331
================================================================================
Change in Net Appreciation (Depreciation) of:
Investment Securities and Written Options 1,307,941
Securities Sold Short (53,886)
Foreign Currency Transactions 9,534
================================================================================
Total Net Appreciation 1,263,589
================================================================================
NET GAIN ON INVESTMENT SECURITIES, FOREIGN CURRENCY
TRANSACTIONS, SECURITIES SOLD SHORT AND WRITTEN OPTIONS 1,400,920
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,420,684
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Advantage Fund
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000
(Note 1)
OPERATIONS
Net Investment Income $ 19,764
Net Realized Gain on Investment Securities, Foreign Currency
Transactions, Securities Sold Short and Written Options 137,331
Change in Net Appreciation of Investment Securities, Foreign
Currency Transactions, Securities Sold Short and Written Options 1,263,589
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 1,420,684
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Class A 40,542,105
Class B 10,625,040
Class C 8,283,890
================================================================================
59,451,035
Amounts Paid for Repurchases of Shares - Class A (198,729)
================================================================================
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 59,252,306
================================================================================
TOTAL INCREASE IN NET ASSETS 60,672,990
NET ASSETS
Initial Subscription - Class A 100,000
Beginning of Period --
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of $18,664) $60,772,990
================================================================================
---------------------------------------------------
FUND SHARE TRANSACTIONS
Initial Subscription - Class A 10,000
Shares Sold
Class A 4,053,733
Class B 1,062,481
Class C 828,354
================================================================================
5,954,568
Shares Repurchased - Class A (19,754)
================================================================================
NET INCREASE IN FUND SHARES 5,934,814
================================================================================
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESCO Advantage Series Funds, Inc.
NOTE 1-- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO
Advantage Series Funds, Inc. is incorporated in Maryland and presently consists
of one Fund: Advantage Fund (the "Fund"). The investment objective of the Fund
is to seek long-term capital appreciation. The Fund commenced investment
operations on August 25, 2000. INVESCO Advantage Series Funds, Inc. is
registered under the Investment Company Act of 1940 (the "Act") as a
non-diversified, open-end management investment company.
The Fund offers three classes of shares, referred to as Class A, Class B and
Class C shares. Each Class of shares is subject to an annual distribution fee to
a maximum of 0.35%, 1.00% and 1.00%, respectively, of the Fund's annual average
net assets attributable to each Class' shares. Income, expenses (other than
those attributable to a specific class) and gains and losses are allocated daily
to each class of shares based on the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against operations of that class. Class A shares are
sold with a front-end sales charge. Class B shares and Class C shares are sold
with a contingent deferred sales charge. Class B shares convert to Class A
shares after eight years along with a pro rata portion of its reinvested
dividends and distributions. The Fund was closed to new investors from August
25, 2000 to September 8, 2000.
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 accounting principles
generally accepted in the United States 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
at the close of the regular trading day on the exchange (generally 4:00 p.m.
Eastern time) where such securities are primarily traded. If last sales prices
are not available, securities are valued at the highest closing bid prices at
the close of the regular trading day as 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.
Debt securities are valued at evaluated bid prices as determined by a pricing
service approved by the Fund's board of directors. If evaluated, bid prices are
not available, debt securities are valued by averaging the bid prices obtained
from one or more dealers making a market for such securities.
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.
Options are valued at the last sales price on the principal exchange on which
the options are traded. If there is no last sales price reported, then the bid
price will be used.
Investments in shares of investment companies are valued at the net asset value
of the respective mutual fund as calculated each day.
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.
<PAGE>
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.
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.
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. Income and expenses on foreign
securities are translated into U.S. dollars at rates of exchange prevailing when
accrued. Discounts and premiums on debt securities purchased are amortized over
the life of the respective security as adjustments to interest income. Cost is
determined on the specific identification basis. The cost of foreign securities
is translated into U.S. dollars at the rates of exchange prevailing when such
securities are acquired.
The Fund may invest in securities issued by other INVESCO Investment Companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share.
The Fund may have elements of risk due to concentrated investments in specific
industries or foreign issuers located in a specific country. Such investments
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.
The Fund incurred and elected to defer post-October 31 net capital losses of
$29,025, to the year ended August 31, 2001. To the extent future capital gains
and income are offset by capital loss carryovers and deferred post-October 31
losses, such gains and income 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.
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.
<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 accounting principles generally accepted in
the United States. These differences are primarily due to differing treatments
for market discounts, amortized premiums, foreign currency transactions,
nontaxable dividends, net operating losses and expired capital loss
carryforwards. For the period ended August 31, 2000, the Fund reclassified
$1,100 from accumulated undistributed net investment income to accumulated
undistributed net realized gain on investment securities. Net investment income,
net realized gains and net assets were not affected.
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. The Fund may also use
derivatives in an attempt to improve performance, although there is no guarantee
that it will be successful in that effort. 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 Liabilities. Any realized gain or loss incurred
by the Fund upon the sale of securities is included in the Statement of
Operations.
G. OPTIONS - The Fund may buy or write put and call options, including
securities index options, on portfolio securities in order to produce
incremental earnings or protect against changes in the value of portfolio
securities. The Fund generally purchases put options or writes call options to
hedge against adverse movements in the value of portoflio holdings.
When an option is written, the Fund receives a premium and becomes obligated to
sell or purchase the underlying security at a fixed price, upon exercise of the
option. In writing an option, the Fund bears the market risk of an unfavorable
change in the price of the security underlying the written option. Exercise of
an option written by the Fund could result in the Fund selling a security at a
price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option, or the cost of the security for a
purchased put or call option is adjusted by the amount of premium received or
paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investment Securities where applicable. Options written are
reported as a liability in the Statement of Assets and Liabilities. Gains and
losses are reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The use of such instruments may involve certain additional risks as a
result of unanticipated movements in the market. A lack of correlation between
the value of an instrument underlying an option and the asset being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
<PAGE>
Written option activity for the period ended August 31, 2000, was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
-----------------------------------------------------------------------------------------------
NUMBER AMOUNT NUMBER AMOUNT
OF OPTIONS OF PREMIUMS OF OPTIONS OF PREMIUMS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at August 25, 2000 0 $ 0 0 $ 0
Options written 1,150 1,332,193 100 20,324
Options closed or expired 0 0 (100) (20,324)
Options outstanding at August 31, 2000 1,150 $ 1,332,193 0 $ 0
</TABLE>
H. SHORT SALES - The Fund engages in short sales as part of its normal
investment activities. Short sales are transactions in which the Fund sells a
securities it does not own in anticipation of an expected decline in the price
of that security. The Fund will incur a loss as a result of the short sale if
the price of the borrowed security increases between the date of the short sale
and the date on which the Fund replaces such security. The Fund will realize a
gain if there is a decline in price of the security between those dates, if the
decline exceeds the cost of borrowing the security and other transaction costs.
There can be no assurance that the Fund will be able to close out a short
position at any particular time. Although the potential for gain is limited to
the difference between the price at which the Fund sold the security short and
the cost of borrowing the security, its potential for loss could be unlimited
because there is no limit to the replacement cost of the borrowed security.
Until the Fund replaces a borrowed security, it will maintain at all times cash
or liquid securities or other collateral with a broker or other custodian in an
amount equal or higher than the current market value of the security sold short.
The Fund receives interest on the collateral it deposits. The liability account
is valued to reflect the current value of the securities sold short and is
presented in the Statement of Assets and Liabilities. Dividend expense on short
sales is recorded on the ex-dividend date.
I. EXPENSES - Each Class bears expenses incurred specifically on its behalf
and, in addition, each Class bears a portion of general expenses, based on the
relative net assets of each Class.
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. For the period ended August 31, 2000, there
were no such credits.
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
calculated at the annual rate of 1.50% of the Fund's daily net assets (the "Base
Fee"). This Base Fee will be adjusted, on a monthly basis (i) upward at a rate
of 0.20%, on a pro rata basis, for each percentage point that investment
performance of the Class A shares of the Fund exceeds the sum of 2.00% plus the
investment record of the Russell 3000 Index (the "Index"), or (ii) downward at
the rate of 0.20%, on a pro rata basis, for each percentage point that
investment record of the Index less 2.00% exceeds the investment performance of
the Class A shares of the Fund (the "Fee Adjustment"). The maximum or minimum
Fee Adjustment, if any, will be 1.00% annually. Therefore, the maximum annual
fee payable to IFG will be 2.50% of average daily net assets and the minimum
annual fee will be 0.50%. During the first twelve months of operation, the
investment advisory fee will be charged at the Base Fee of 1.50% with no Fee
Adjustment.
<PAGE>
A master distribution plan and agreement for each Class of shares pursuant to
Rule 12b-1 of the Act (the "Plans") provides for compensation of certain
promotional and other sales related costs to INVESCO Distributors, Inc. ("IDI"
or the "Distributor"), a wholly owned subsidiary of IFG. Class A shares of the
Fund pay compensation to IDI at a rate of 0.35% of annual average net assets.
During any period that Class A shares of the Fund are closed to new investors,
the Fund will reduce this payment for Class A shares from 0.35% to 0.25% per
annum. Class B and Class C shares of the Fund pay compensation to IDI at a rate
of 1.00% of annual average net assets. Of these amounts, IDI may pay a service
fee of 0.25% of the average net assets of the Class A, Class B or Class C shares
to selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own the applicable
class of shares of the Fund. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. The Plans also impose caps
on the total sales charges, including asset-based sales charges, that may be
paid by the respective class. Any unreimbursed expenses IDI incurs with respect
to Class A and Class C shares in any fiscal year can not be recovered in
subsequent years. If the Class B Plan is terminated, the Board of Directors may
allow the Class B shares to continue payments of the asset-based sales charge to
the Distributor for allowable unreimbursed expenses incurred for distributing
shares before the Class B Plan was terminated. The Class B Plan allows for the
carry-forward of distribution expenses, to be recovered from asset-based sales
charges in subsequent fiscal periods. For the period ended August 31, 2000,
there were no amounts paid to the Distributor for any Class of shares.
IFG receives a transfer agent fee from each Class at an annual rate of $22.50
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 Services Agreement, the Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the period ended
August 31, 2000, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
POSITION PURCHASES SALES
--------------------------------------------------------------------------------
Long Positions $ 50,652,885 $ 0
Short Positions 763,125 2,879,072
There were no purchases or sales of U.S. Government securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At August 31, 2000, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation were as follows:
NET
GROSS GROSS APPRECIATION
POSITION APPRECIATION DEPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------
Long Positions $ 1,772,848 $ 223,549 $ 1,549,299
Short Positions 3,204 57,090 (53,886)
Options Purchased 2,850 48,375 (45,525)
Options Written 57,778 247,460 (189,682)
--------------
$ 1,260,206
<PAGE>
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IDI.
The Fund has adopted an unfunded defined benefit 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 50% of the sum of the
retainer fee plus the meeting attendance fees.
Pension expenses, unfunded accrued pension costs and pension liabilities were
insignificant for the period ended August 31, 2000.
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
NOTE 6 - INTERFUND BORROWING AND LENDING. The Fund is party to an interfund
lending agreement between the Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. Pursuant to the Fund's prospectus, the Fund may borrow
up to 33 1/3% of its total assets for temporary or emergency purposes and for
purchasing securities, or by engaging in reverse repurchase agreements with any
party. At August 31, 2000, there were no such borrowings and/or lendings for the
Fund.
NOTE 7 - LINE OF CREDIT. The Fund has available a Line of Credit Facility
("LOC"), from a bank, to be used for temporary or emergency purposes to fund
redemptions of investor shares or to borrow for the purpose of purchasing
securities. The LOC permits borrowings to a maximum of 33 1/3% of the net assets
at value of the Fund. The Fund agrees to pay annual fees and interest on the
unpaid principal balance on prevailing market rates as defined in the LOC
agreement. At August 31, 2000, there were no such borrowings.
NOTE 8 - CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares of the Fund
are currently sold with a sales charge ranging from 5.50% to 2.00% of the
offering price on purchases of less than $1,000,000. Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeem these shares
within 18 months from the date of purchase. A CDSC is charged by Class B shares
on redemptions or exchanges of shares at a maximum of 5.00% which may be reduced
or certain sales charge exceptions may apply. A 1.00% CDSC is charged by Class C
shares on redemptions or exchanges held thirteen months or less (other than
shares acquired through reinvestment of dividends or other distributions). The
CDSC is paid by the redeeming shareholder; it is not an expense of the Fund. For
the period ended August 31, 2000, the Distributor did not receive a CDSC from
shareholder redemptions for Class A, Class B and Class C shares.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INVESCO Advantage Series 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 Advantage Fund (the sole
portfolio constituting INVESCO Advantage Series Funds, Inc., hereafter referred
to as the "Fund") at August 31, 2000, the results of its operations, the changes
in its net assets and the financial highlights for the period August 24, 2000
(commencement of investment operations) through August 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
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 audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
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 audit, which included
confirmation of securities at August 31, 2000 by correspondence with the
custodian and broker, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
October 2, 2000
<PAGE>
FINANCIAL HIGHLIGHTS
ADVANTAGE FUND - CLASS A
--------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income(b) 0.00
Net Gains on Securities (Both Realized and Unrealized) 0.24
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.24
================================================================================
Net Asset Value - End of Period $ 10.24
================================================================================
TOTAL RETURN(c) 2.40%(d)
RATIOS
Net Assets-- End of Period ($000 Omitted) $ 41,413
Ratio of Expenses to Average Net Assets 1.82%(e)
Ratio of Net Investment Income to Average Net Assets 3.28%(e)
Portfolio Turnover Rate 5%(d)
(a) From August 25, 2000, commencement of investment operations, to August 31,
2000.
(b) Net Investment Income aggregated less than $0.01 on a per share basis.
(c) The applicable sales charges are not included in the Total Return
calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Annualized
<PAGE>
ADVANTAGE FUND - CLASS B
--------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value - Beginning of Period $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income(b) 0.00
Net Gains on Securities (Both Realized and Unrealized) 0.24
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.24
================================================================================
Net Asset Value-- End of Period $ 10.24
================================================================================
TOTAL RETURN(c) 2.40%(d)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 10,878
Ratio of Expenses to Average Net Assets 2.56%(e)
Ratio of Net Investment Income to Average Net Assets 2.53%(e)
Portfolio Turnover Rate 5%(d)
(a) From August 25, 2000, commencement of investment operations, to August 31,
2000.
(b) Net Investment Income aggregated less than $0.01 on a per share basis.
(c) The applicable CDSC fees are not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Annualized
<PAGE>
ADVANTAGE FUND - CLASS C
--------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value - Beginning of Period $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income(b) 0.00
Net Gains on Securities (Both Realized and Unrealized) 0.24
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.24
================================================================================
Net Asset Value - End of Period $ 10.24
================================================================================
TOTAL RETURN(c) 2.40%(d)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 8,482
Ratio of Expenses to Average Net Assets 2.57%(e)
Ratio of Net Investment Income to Average Net Assets 2.53%(e)
Portfolio Turnover Rate 5%(d)
(a) From August 25, 2000, commencement of investment operations, to August 31,
2000.
(b) Net Investment Income aggregated less than $0.01 on a per share basis.
(c) The applicable CDSC fees are not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Annualized
