-------------------------- OMB APPROVAL -------------------------- OMB Number: 3235-0570 Expires: Nov. 30, 2005 Estimated average burden hours per response: 5.0 -------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR/A CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File Number: 811-09913 ------------------------------------------- AIM Counselor Series Trust (Successor to: INVESCO Counselor Series Funds, Inc.) ----------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 11 Greenway Plaza, Suite 100 Houston, Texas 77046 ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046 ----------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (713) 626-1919 ------------------------ Date of fiscal year end: 8/31/03 --------------- Date of reporting period: 8/31/03 --------------- Explanatory Note The Registrant is filing this Amendment to its Certified Shareholder Report on Form N-CSR filed with the Securities and Exchange Commission on November 6, 2003: to provide the proper form of Certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended that were required at the original time of filing, to provide the Certifications required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and to comply with the applicable exhibit requirements of Form N-CSR. This Form N-CSR/A also amends the previous filing disclosure for Item 2 "Code of Ethics" to provide all applicable disclosure, and updates Item 9 "Controls and Procedures" as required. Other than the aforementioned revisions this Form N-CSR/A does not reflect events occurring after the filing of the original Form N-CSR, or modify or update the disclosures therein in any way. ITEM 1. REPORT TO SHAREHOLDERS AUGUST 31, 2003 ANNUAL REPORT - -------------------------------------------------------------------------------- INVESCO COUNSELOR SERIES FUNDS, INC. EFFECTIVE OCTOBER 1, 2003, INVESCO COUNSELOR SERIES FUNDS, INC. WILL CHANGE ITS NAME TO AIM COUNSELOR SERIES FUNDS, INC. ADVANTAGE FUND ADVANTAGE HEALTH SCIENCES FUND (FORMERLY, ADVANTAGE GLOBAL HEALTH SCIENCES FUND) "...OUR OPTIMISM ABOUT THE ECONOMY HAS NOT WAVERED." SEE PAGE 4 [INVESCO ICON] INVESCO (R) [PHOTOGRAPH OF RAY CUNNINGHAM OMITTED] NEW DISTRIBUTOR FOR INVESCO FUNDS FELLOW SHAREHOLDER: In recent months, we at INVESCO have taken some key steps in our ongoing effort to provide you with high-quality investment products and services. As you may have already heard, we've begun working more closely with our affiliates at AIM Investments,(SM)* a well-respected leader in the asset management industry. As a result, A I M Distributors, Inc. became the distributor of INVESCO's U.S. retail funds effective July 1, 2003. This move has allowed us to create a single distribution system for both our companies that is supported by more than 200,000 financial consultants. In addition, some of INVESCO's funds, including Advantage Fund, underwent portfolio management shifts on July 1. You'll notice that while the investment objectives for INVESCO Advantage remain the same, this fund is now under the stewardship of a veteran portfolio management team from AIM. You can read more about the new managers on page 4. And on September 30, 2003, INVESCO Advantage Global Health Sciences Fund was renamed Advantage Health Sciences Fund. Finally, the INVESCO Web site is now integrated into aiminvestments.com, which has been rated the top financial Web site for 10 consecutive quarters by the DALBAR financial professional MutualFund WebMonitor report.** You can access important information about INVESCO's Counselor Series Funds, including share prices, investment objectives, and portfolio manager biographies, at AIM's Web site. Thank you for your continued support. If you have questions about any of these changes, please don't hesitate to call us at 1-800-959-4246. Sincerely, /s/Ray Cunningham Ray Cunningham President and CEO, INVESCO Funds Group, Inc. * AIM INVESTMENTS IS A SERVICE MARK OF A I M MANAGEMENT GROUP INC., AND IS THE SUBJECT OF A PENDING APPLICATION FOR TRADEMARK REGISTRATION. A I M ADVISORS, INC., A I M CAPITAL MANAGEMENT, INC., A I M PRIVATE ASSET MANAGEMENT, INC. AND A I M ALTERNATIVE ASSET MANAGEMENT COMPANY, INC. ARE THE INVESTMENT ADVISORS FOR THE PRODUCTS AND SERVICES REPRESENTED BY AIM INVESTMENTS. A I M DISTRIBUTORS, INC., IS THE DISTRIBUTOR FOR THE RETAIL MUTUAL FUNDS AND FUND MANAGEMENT COMPANY IS THE DISTRIBUTOR FOR THE INSTITUTIONAL MONEY MARKET FUNDS REPRESENTED BY AIM INVESTMENTS. ** DALBAR, INC., IS AN INDEPENDENT ORGANIZATION THAT PROVIDES BENCHMARKS AND RATINGS FOR FINANCIAL SERVICES COMPANIES. THE DALBAR WEBMONITOR AWARD IS BASED ON FOUR EVALUATION CRITERIA: SITE FUNCTIONS, USABILITY, CURRENCY AND RELEVANCE OF CONTENT, AND CONSISTENCY OF WEB SITE IMAGE AND CONTENT. "...SHORT SELLING REMAINS AN IMPORTANT TACTIC OF THE FUND'S LONG-TERM STRATEGY..." - - PAGE 6 TABLE OF CONTENTS LETTER FROM THE CHAIRMAN............................1 FUND REPORTS........................................3 INVESTMENT HOLDINGS.................................8 FINANCIAL STATEMENTS...............................18 NOTES TO FINANCIAL STATEMENTS......................24 FINANCIAL HIGHLIGHTS...............................32 OTHER INFORMATION..................................38 INVESCO COUNSELOR SERIES FUNDS, INC. TOTAL RETURN PERIODS ENDED 8/31/03* 10 years+ Manager's Cumulative or Since Report Fund (Inception) 6 months 1 year 5 years+ Inception** Page # - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE FUND - CLASS A WITH SALES CHARGE (8/00) 16.04% 3.31% N/A (17.69%)**+ 3 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE FUND - CLASS A (8/00) 22.69% 9.35% N/A (16.14%)**+ 3 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE FUND - CLASS B WITH CDSC (8/00) 17.44% 4.24% N/A (17.24%)**+ 3 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE FUND - CLASS B (8/00) 22.44% 9.24% N/A (16.44%)**+ 3 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE FUND - CLASS C WITH CDSC (8/00) 21.10% 7.81% N/A (16.66%)**+ 3 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE FUND - CLASS C (8/00) 22.10% 8.81% N/A (16.66%)**+ 3 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE HEALTH SCIENCES FUND - CLASS A WITH SALES CHARGE (1/92) 10.83% 2.87% 1.39% 10.50% 5 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE HEALTH SCIENCES FUND - CLASS A (1/92) 17.29% 8.87% 2.54% 11.13% 5 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE HEALTH SCIENCES FUND - CLASS B WITH CDSC (5/01) 11.33% 2.14% N/A (6.72%)**+ 5 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE HEALTH SCIENCES FUND - CLASS B (5/01) 16.33% 7.14% N/A (5.47%)**+ 5 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE HEALTH SCIENCES FUND - CLASS C with CDSC (5/01) 14.43% 5.14% N/A (6.59%)**+ 5 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE HEALTH SCIENCES FUND - CLASS C (5/01) 15.43% 6.14% N/A (6.59%)**+ 5 - ------------------------------------------------------------------------------------------------------------------------------------ * 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 FUNDS' CLASS A PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE OF 5.50%. THE FUNDS' CLASS B AND CLASS C PERFORMANCE REFLECTS THE DEDUCTION OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE FOR THE PERIODS SHOWN. THE CDSC ON CLASS B SHARES DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH YEAR. THE CDSC OF CLASS C SHARES IS 1% FOR THE FIRST 13 MONTHS AFTER PURCHASE. EFFECTIVE AUGUST 18, 2003, THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST 12 MONTHS AFTER PURCHASE. THE PERFORMANCE OF THE FUND'S CLASS A, CLASS B AND CLASS C SHARES WILL DIFFER DUE TO THE DIFFERENT SALES CHARGE STRUCTURES AND CLASS EXPENSES. + AVERAGE ANNUALIZED ** FOR FUNDS OR SHARE CLASSES INTRODUCED MORE RECENTLY PERFORMANCE INFORMATION PROVIDED IN THIS REPORT DOES NOT REFLECT THE DEDUCTION OF TAXES SHAREHOLDERS PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE INDUSTRIES AND/OR SECTORS USED FOR PORTFOLIO SECURITIES CLASSIFICATION THAT MAY BE USED THROUGHOUT THIS REPORT ARE THE GLOBAL INDUSTRY CLASSIFICATION STANDARD WHICH WAS DEVELOPED BY AND IS THE EXCLUSIVE PROPERTY AND A SERVICE MARK OF MORGAN STANLEY CAPITAL INTERNATIONAL INC. AND STANDARD & POOR'S.(R) YOUR FUND'S REPORT ADVANTAGE FUND FUND PERFORMANCE DEAR SHAREHOLDER: For the 12-month period ended August 31, 2003, the value of Advantage Fund -- Class A shares increased by 9.35% (without sales charge). This return trailed the 13.92% gain recorded by its benchmark, the Russell 3000 Index. (Of course, past performance is not a guarantee of future results.)(1),(2) For performance of other share classes, please see page 2. In absolute terms, it was a strong period for the fund, as many of its holdings benefited from renewed strength in the stock market. Aside from a few months of weakness in early 2003, when investors worried about the conflict in Iraq, stocks generally trended higher throughout the period. TECHNOLOGY STOCKS SURGED The market's -- and the fund's -- best-performing sector was technology, which benefited from investors' generally bullish attitude. The technology sector rallied sharply after the Federal Reserve's final 2002 rate cut in November, a move that encouraged investors and had them feeling more optimistic about the likelihood of an increase in enterprise and consumer spending. Although the tech sector paused in early 2003 when the market's anxieties relating to the war tempered enthusiasm, for most of the period improved sentiment led to strong gains in most technology industries. The fund benefited from its exposure to Internet software and services companies, such as United Online; semiconductor companies, such as Intel Corp; and software holdings, such as Microsoft Corp. - -------------------------------------------------------------------------------- ADVANTAGE FUND TOP 10 COMMON STOCK HOLDINGS % OF TOTAL NET ASSETS AS OF 8/31/03 - -------------------------------------------------------------------------------- General Electric..............................................2.86% Microsoft Corp................................................2.75% Citigroup Inc.................................................2.73% Intel Corp....................................................2.53% Pfizer Inc....................................................2.14% Semiconductor HOLDRs Trust....................................1.89% Wal-Mart Stores...............................................1.77% Cisco Systems.................................................1.74% Johnson & Johnson.............................................1.71% Teva Pharmaceutical Industries Ltd Sponsored ADR Representing Ord Shrs...........................1.62% HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE. - -------------------------------------------------------------------------------- The market's optimism about the economy also supported our consumer discretionary stocks. Among the sub-sectors that made positive contributions to the fund's performance were our holdings in the leisure, apparel, Internet retailers, and specialty retailers. Individual standouts included online auctioneer eBay Inc and Pacific Sunwear of California in specialty retailing. HEALTH CARE SERVICE PROVIDERS HURT PERFORMANCE The strong relative performance of the tech and consumer discretionary sectors could not offset underperformance in other groups. In many of these weaker areas, our holdings advanced during the period, but by less than the broader market, accounting for the fund's relative performance shortfall. Lagging groups included the fund's health care stocks, particularly our health care service providers, which declined in the wake of concerns about Medicare pricing. The fund's market-weighted pharmaceuticals position also detracted from relative performance. Although our holdings in pharmaceuticals advanced strongly and handily outperformed those drug stocks represented in the Russell 3000 Index, the fact that the fund was heavily weighted in an underperforming area hurt our relative showing. The same was true for the fund's consumer staples weighting. Once again, our stock selection worked well, as companies such as United Natural Foods and Wal-Mart Stores outperformed the rest of the sector. However, our decision to overweight the group, which lagged the broader market, undermined performance. Meanwhile, we continued to employ several "plain vanilla" option strategies during the period, many of which added value. In one strategy, we sold other investors the right to buy individual stocks in our portfolio at significantly higher prices. When everything worked well, we not only locked in healthy profits on the sale, but also received a premium when we sold the right. In another strategy known as selling "naked put" options, we sold other investors the right to sell us blue chip stocks at prices that were significantly lower than where they were trading. To us, these "naked put" transactions meant we were being paid to buy what we believed were some of the world's greatest companies at prices that we anticipate will prove to be exceptionally cheap over the next three to five years. As the market stabilized during the late spring and early summer, we ratcheted back our options strategies. The risk/reward profile for these strategies became less favorable, as the market became less nervous and was less willing to pay up for options that would provide them the "portfolio insurance" that we were selling earlier in the year. ENERGY AND FINANCIAL SERVICES STOCKS ADVANCED BUT HURT RELATIVE PERFORMANCE Other areas that made positive contributions to absolute performance but hurt our showing when compared to the index included our stakes in the energy, financial services, and telecommunications sectors. The fund's exposure to the industrial and utilities sectors finished the period in the red. Looking ahead, our optimism about the economy has not wavered. We continue to believe business will improve in the coming year, and we have positioned the portfolio in an effort to best capitalize on the recovery. SINCE 7/1/03, THE FUND HAS BEEN MANAGED BY STEVEN A. BRASE, BRANT H. DEMUTH, ROBERT C. LESLIE, AND CHARLES D. SCAVONE. LINE GRAPH: INVESCO ADVANTAGE FUND - CLASS A, B & C, GROWTH OF $10,000(1) This line graph compares the value of a $10,000 investment in INVESCO Advantage Fund - Class A to the value of a $10,000, the value of a $10,000 investment in INVESCO Advantage Fund - Class B, and the value of a $10,000 investment in INVESCO Advantage Fund - Class C to the value of a $10,000 investment in the Russell 3000 Index(2), assuming in each case reinvestment of all dividends and capital gain distributions, and in the cases of INVESCO Advantage Fund - Class A, Class B, and Class C inclusion of front-end sales charge and contingent deferred sales charge, respectively, for the period since inception (8/01) through 8/31/03. INVESCO Advantage INVESCO Advantage INVESCO Advantage Russell 3000 Index(2) Fund - Class A Fund - Class B Fund - Class C 8/00 $10,000 $10,000 $10,000 $10,000 8/01 $ 7,624 $ 8,004 $ 7,994 $ 7,644 8/02 $ 5,079 $ 5,323 $ 5,301 $ 6,321 8/03 $ 5,556 $ 5,649 $ 5,768 $ 7,202 PIE CHART: ADVANTAGE FUND SECTOR DIVERSIFICATION AS OF 8/31/03 [PIE CHART] % OF TOTAL ASSETS o Information Technology.......................20.20% o Health Care..................................17.28% o Financials...................................15.26% o Consumer Staples.............................10.39% o Consumer Discretionary.......................10.15% o Industrials...................................7.19% o Energy........................................5.82% o Telecommunications Services...................3.96% o Utilities.....................................2.60% o Materials.....................................0.74% o Derivatives-Options...........................0.40% o Net Cash & Cash Equivalents...................6.01% (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 FLUCTUATE 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 ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS 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. (2) 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, INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX. INVESTORS SHOULD REALIZE 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. THE FUND MAY BE REQUIRED TO PAY A PREMIUM TO BORROW SECURITIES, AND JUST AS THERE IS NO GUARANTEE A STOCK PURCHASED WILL RISE, THERE IS NO GUARANTEE A STOCK "SHORTED" WILL FALL. 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. AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST. MEET THE NEW MANAGEMENT TEAM [PHOTOGRAPH OF STEVEN A. BRASE OMITTED] [PHOTOGRAPH OF BRANT H. DEMUTH OMITTED] STEVEN A. BRASE, CFA (LEFT) STEVEN BRASE HAS BEEN IN THE INVESTMENT BUSINESS SINCE 1995 AND JOINED AIM IN 1998. HE HAS A BS IN MECHANICAL ENGINEERING FROM THE UNIVERSITY OF CALIFORNIA AT SANTA BARBARA. HE EARNED HIS MBA FROM THE UNIVERSITY OF VIRGINIA. BRANT H. DEMUTH, CFA BRANT DEMUTH JOINED AIM IN 1996 AS HEAD OF RISK MANAGEMENT AND WAS PROMOTED TO HIS CURRENT POSITION IN 1998. HE BEGAN HIS INVESTMENT CAREER IN 1987. HE RECEIVED A BS IN BUSINESS ADMINISTRATION FROM COLORADO STATE UNIVERSITY AND AN MBA IN OIL AND GAS FINANCE FROM THE UNIVERSITY OF DENVER. [PHOTOGRAPH OF ROBERT C. LESLIE OMITTED] [PHOTOGRAPH OF CHARLES D. SCAVONE OMITTED] ROBERT C. LESLIE, CFA (LEFT) ROBERT LESLIE BEGAN HIS INVESTMENT CAREER IN 1985 AND JOINED AIM IN 1998. HE RECEIVED HIS BA IN MUSIC PERFORMANCE FROM SUSQUEHANNA UNIVERSITY AND AN MBA IN FINANCE FROM THE UNIVERSITY OF MARYLAND. CHARLES D. SCAVONE, CFA CHARLES SCAVONE HAS BEEN IN THE INVESTMENT BUSINESS SINCE 1991 AND JOINED AIM IN 1996. HE EARNED A BBA FROM SOUTHEASTERN LOUISIANA UNIVERSITY AND AN MBA FROM THE UNIVERSITY OF HOUSTON. YOUR FUND'S REPORT ADVANTAGE HEALTH SCIENCES FUND FUND PERFORMANCE DEAR SHAREHOLDER: For the 12-month period ended August 31, 2003, the value of Advantage Health Sciences Fund-Class A shares advanced 8.87% (without sales charge), compared with a 29.01% gain in the Morgan Stanley Health Care Products Index and a 3.89% gain in the S&P 500 Health Care Index(R) during the same period. (Of course, past performance is not a guarantee of future results.)(3),(4) For performance of other share classes, please see page 2. PRIVATE EQUITY AND HEALTH SERVICES WEIGHTINGS HAMPER PERFORMANCE Although the fund logged a healthy gain for the fiscal year, it lagged its benchmark. We attribute the underperformance in part to our weighting in private equities, illiquid securities purchased by the fund's prior management team. With venture capital opportunities continuing to dry up this past year, many of these holdings suffered sharp losses. - -------------------------------------------------------------------------------- ADVANTAGE HEALTH SCIENCES FUND TOP 10 COMMON STOCK HOLDINGS % OF TOTAL NET ASSETS AS OF 8/31/03 - -------------------------------------------------------------------------------- Amgen Inc.....................................................4.17% Teva Pharmaceutical Industries Ltd Sponsored ADR Representing Ord Shrs...........................3.91% Boston Scientific.............................................3.57% Alcon Inc.....................................................3.40% Genentech Inc.................................................3.18% Anthem Inc....................................................2.99% Aetna Inc.....................................................2.93% WellPoint Health Networks.....................................2.91% UnitedHealth Group............................................2.87% C.R. Bard ....................................................2.76% HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE. - -------------------------------------------------------------------------------- Our position in health services companies during the fourth quarter of 2002 was another negative factor. Leading up to the annual period ended August 31, the fund's health services holdings had performed extremely well through the market downturn -- particularly during the second and third quarters of 2002. Consequently, our weighting in the health care services sub-sector had become significant, with our hospital holdings in particular appreciating to become a substantial portion of the portfolio. However, at the end of October 2002, Tenet Healthcare (no longer a fund holding) fell under scrutiny for its Medicare pricing tactics -- news that quickly clouded the entire services area. Following this development, the fund's exposure to Tenet and other services leaders proved detrimental, hampering performance and negatively affecting our overall return for the year. Indeed, although we quickly liquidated our position in Tenet, our remaining holdings in other hospitals that fell in sympathy with Tenet proved detrimental to results. In addition, the fund was hurt on a relative basis by its lack of exposure to small-cap biotechnology companies. Preferring to focus on profitable biotech stocks with products already on the market plus improving pipelines, we avoided the more speculative stocks in this sub-sector. Although we believe that this is the most prudent approach for long-term investors, the strategy held us back somewhat this past year, as many of the more speculative biotech stocks surged during the market rally that unfolded in the spring and summer of 2003. MEDICAL DEVICE AND SPECIALTY PHARMACEUTICALS PROVIDE A BOOST Throughout the period, we maintained a substantial weighting in medical device companies, and many of the fund's holdings representing this sub-sector performed quite well. One major contributor was Boston Scientific, one of two companies (the other is Johnson & Johnson, also a fund holding) that we believe are poised to dominate the promising drug-coated stent market -- potentially the largest new therapeutic market in health care. (Drug-coated stents are devices used to prop open arteries, and contain drugs to keep them unclogged.) We purchased Boston Scientific in the fall of 2002 and have seen its stock rise sharply since then. The fund's specialty pharmaceutical holdings also had a favorable impact on performance. We maintained a strong presence in this group throughout the period, to the fund's benefit. Strong contributors included Teva Pharmaceutical Industries Ltd and Forest Laboratories, the latter of which the fund had owned for three years. We recently took profits in Forest Laboratories, allowing us to realize material gains on that stock. LINE GRAPH: INVESCO ADVANTAGE HEALTH SCIENCES FUND - CLASS A GROWTH OF $10,000(3) This line graph compares the value of a $10,000 investment in INVESCO Advantage Health Sciences Fund - Class A to the value of a $10,000 investment in the S&P 500 Health Care Index(R)(4), assuming in each case reinvestment of all dividends and capital gain distributions, and in the case of INVESCO Advantage Health Sciences Fund - Class A, inclusion of sales charge, for the ten year period ended 8/31/03. INVESCO Advantage Health Sciences Fund - Class A S&P 500 Health Care Index(R)(4) 8/93 $10,000 $10,000 8/94 $10,336 $11,817 8/95 $14,683 $15,886 8/96 $18,828 $20,999 8/97 $21,483 $29,369 8/98 $23,937 $38,327 8/99 $28,531 $46,874 8/00 $43,271 $51,590 8/01 $30,683 $51,682 8/02 $24,934 $43,749 8/03 $27,145 $45,451 NOTE: THE MORGAN STANLEY HEALTH CARE PRODUCT INDEX(4) DOES NOT HAVE A 10-YEAR PERFORMANCE HISTORY. STRATEGY INCLUDES OPPORTUNISTIC SHORT SELLING During the period, we reduced the fund's exposure to short positions following strong gains attributable to this strategy in the second and third quarters of 2002. However, short selling remains an important tactic of the fund's long-term strategy, and we will continue to monitor potential opportunities for both short selling and the use of leverage -- another tactic provided for by the fund's flexible charter. LINE GRAPH: INVESCO ADVANTAGE HEALTH SCIENCES FUND - CLASS B & C GROWTH OF $10,000(3) This line graph compares the value of a $10,000 investment in INVESCO Advantage Health Sciences Fund - Class B and the value of a $10,000 investment in INVESCO Advantage Health Sciences Fund - Class C to the value of a $10,000 investment in the S&P 500 Health Index(R)(4) and to the value of a $10,000 investment in the Morgan Stanley Health Care Product Index(4), assuming in each case reinvestment of all dividends and capital gain distributions, and in the cases of INVESCO Advantage Health Sciences Fund - Class B and Class C inclusion contingent deferred sales charge, respectively, for the period since inception (5/01) through 8/31/03. INVESCO Advantage INVESCO Advantage S&P 500 Health Care Morgan Stanley Health Health Sciences Health Sciences Index(R)(4) Care Product Index(4) Fund - Class B Fund - Class C 5/01 $10,000 $10,000 $10,000 $10,000 8/01 $10,230 $10,069 $ 9,884 $10,509 8/02 $ 8,202 $ 8,055 $ 8,367 $ 8,852 8/03 $ 8,524 $ 8,550 $ 8,692 $11,420 FUND MANAGEMENT [PHOTOGRAPH OF THOMAS R. WALD OMITTED] THOMAS R. WALD, CFA TOM WALD IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE BEGAN HIS INVESTMENT CAREER IN 1988 AND JOINED INVESCO IN 1997. TOM RECEIVED HIS BA FROM TULANE UNIVERSITY AND HIS MBA FROM THE UNIVERSITY OF PENNSYLVANIA. ------------------------------ ON SEPTEMBER 30, 2003, THE FUND WAS RENAMED INVESCO ADVANTAGE HEALTH SCIENCES FUND. Recently, we have been increasing the fund's exposure to the managed care sub-sector. We've also purchased some leading pharmacy benefit managers, as we believe growth prospects look strong for these companies. At the same time, we have reduced the fund's overall weighting in medical device companies. Turning to large-cap pharmaceuticals, we've maintained positions in key companies like Pfizer Inc, Wyeth, Eli Lilly & Co, and Bristol-Myers Squibb. We are cautiously awaiting these firms' new product cycles, which could lead to accelerated earnings going forward. PIE CHART: ADVANTAGE HEALTH SCIENCES FUND INDUSTRY DIVERSIFICATION AS OF 8/31/03 [PIE CHART] % OF TOTAL NET ASSETS LONG SHORT o Pharmaceuticals.......................40.71% (1.31%) o Health Care Equipment.................25.16% (0.00%) o Biotechnology.........................19.87% (0.31%) o Managed Health Care...................17.82% (0.00%) o Health Care Distributors..............10.03% (0.00%) o Health Care Facilities.................8.09% (0.00%) o Health Care Supplies...................0.37% (0.00%) Net Cash & Cash Equivalents.....................(22.05%) (3) 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 FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE. (4) THE S&P 500 HEALTH CARE INDEX(R) AND THE MORGAN STANLEY HEALTH CARE PRODUCT INDEX ARE BOTH UNMANAGED INDEXES REPRESENTATIVE OF THE STOCKS IN THE HEALTH CARE SECTOR. THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS (IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEXES ARE NOT MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND, INCLUDING APPLICABLE FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX. INVESTORS SHOULD REALIZE 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. THE FUND MAY BE REQUIRED TO PAY A PREMIUM TO BORROW SECURITIES, AND JUST AS THERE IS NO GUARANTEE A STOCK PURCHASED WILL RISE, THERE IS NO GUARANTEE A STOCK "SHORTED" WILL FALL. 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. SECTOR FUNDS MAY EXPERIENCE GREATER SHORT-TERM PRICE VOLATILITY THAN MORE DIVERSIFIED EQUITY FUNDS, AND ARE MOST SUITABLE FOR THE AGGRESSIVE PORTION OF AN INVESTMENT PORTFOLIO. INVESTMENT HOLDINGS STATEMENT OF INVESTMENT SECURITIES INVESCO COUNSELOR SERIES FUNDS, INC. AUGUST 31, 2003 SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- ADVANTAGE FUND 93.59 COMMON STOCKS 0.74 ADVERTISING Lamar Advertising Class A Shrs(a) 1,500 $ 50,115 Omnicom Group 600 46,860 ================================================================================ 96,975 1.07 AGRICULTURAL PRODUCTS Bunge Ltd 4,600 139,196 ================================================================================ 1.76 AIR FREIGHT & COURIERS Expeditors International of Washington 1,900 71,649 FedEx Corp 1,100 73,810 UTI Worldwide 2,300 83,950 ================================================================================ 229,409 0.83 APPAREL RETAIL Pacific Sunwear of California(a) 3,200 108,160 ================================================================================ 0.77 APPLICATION SOFTWARE Mercury Interactive(a) 1,900 83,391 Software HOLDRs Trust(b) 500 16,800 ================================================================================ 100,191 0.61 BIOTECHNOLOGY Biotech HOLDRs Trust(a)(b) 600 79,104 ================================================================================ 0.55 BREWERS Anheuser-Busch Cos 1,400 72,156 ================================================================================ 1.24 BROADCASTING - RADIO/TV Grupo Televisa SA de CV Sponsored ADR Representing 20 Ord Participation Certificates 2,100 78,750 Univision Communications Class A Shrs(a) 2,200 82,478 ================================================================================ 161,228 0.98 CABLE & SATELLITE OPERATORS Cablevision Systems New York Group(a) 3,100 62,465 Comcast Corp Class A Shrs(a) 2,300 65,228 ================================================================================ 127,693 0.39 COMMUNICATIONS EQUIPMENT Corning Inc(a) 6,200 51,150 ================================================================================ 2.54 COMPUTER HARDWARE Dell Inc(a) 4,600 150,098 International Business Machines 2,200 180,422 ================================================================================ 330,520 0.38 CONSUMER ELECTRONICS Harman International Industries 500 49,825 ================================================================================ SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- 1.59 CONSUMER FINANCE Providian Financial(a) 7,300 $ 74,825 SLM Corp 3,300 132,594 ================================================================================ 207,419 1.14 DATA PROCESSING SERVICES First Data 1,900 72,960 Paychex Inc 2,100 75,600 ================================================================================ 148,560 3.03 DIVERSIFIED BANKS Bank of America 2,100 166,425 First Tennessee National 1,900 78,565 FleetBoston Financial 2,700 79,893 Wells Fargo & Co 1,400 70,196 ================================================================================ 395,079 4.17 DIVERSIFIED FINANCIAL SERVICES American Express 1,600 72,080 Citigroup Inc 8,200 355,470 Goldman Sachs Group 1,300 115,037 ================================================================================ 542,587 0.41 DIVERSIFIED METALS & MINING Freeport McMoRan Copper & Gold Class B Shrs 1,800 54,000 ================================================================================ 0.33 DRUG RETAIL Walgreen Co 1,300 42,341 ================================================================================ 2.32 ELECTRIC UTILITIES Ameren Corp 900 38,250 American Electric Power 1,400 39,634 Cleco Corp 2,300 35,972 DPL Inc 2,500 38,625 DQE Inc 2,400 35,400 Hawaiian Electric Industries 900 38,682 Southern Co 1,300 36,894 Xcel Energy 2,600 38,090 ================================================================================ 301,547 0.91 FOOD DISTRIBUTORS United Natural Foods(a) 4,000 119,000 ================================================================================ 1.00 FOOD RETAIL Dean Foods(a) 4,500 130,725 ================================================================================ 0.29 GAS UTILITIES Nicor Inc 1,100 37,389 ================================================================================ 2.64 HEALTH CARE EQUIPMENT Becton, Dickinson & Co 800 29,232 C.R. Bard 500 33,500 Medtronic Inc 1,800 89,244 Quality Systems(a) 2,000 86,040 Varian Medical Systems(a) 600 33,510 SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- Zimmer Holdings(a) 1,400 $ 72,436 ================================================================================ 343,962 1.02 HOME IMPROVEMENT RETAIL Home Depot 2,600 83,616 Lowe's Cos 900 49,374 ================================================================================ 132,990 1.83 HOUSEHOLD PRODUCTS Colgate-Palmolive Co 1,300 71,864 Procter & Gamble 1,900 165,851 ================================================================================ 237,715 1.77 HYPERMARKETS & SUPER CENTERS Wal-Mart Stores 3,900 230,763 ================================================================================ 3.41 INDUSTRIAL CONGLOMERATES General Electric 12,600 372,582 3M Co 500 71,235 ================================================================================ 443,817 0.81 INSURANCE BROKERS Marsh & McLennan 2,100 105,000 ================================================================================ 1.33 INTEGRATED OIL & GAS Murphy Oil 3,000 173,190 ================================================================================ 0.48 INTEGRATED TELECOMMUNICATION SERVICES Deutsche Telekom AG Sponsored ADR Representing Ord Shrs(a) 4,400 63,096 ================================================================================ 0.60 INTERNET RETAIL eBay Inc(a) 1,400 77,742 ================================================================================ 3.30 INTERNET SOFTWARE & SERVICES j2 Global Communications(a) 1,000 62,720 Netease.com Inc Sponsored ADR Representing 100 Ord Shrs(a) 2,100 106,911 SINA Corp(a) 3,900 121,212 Sohu.com Inc(a) 2,200 66,044 United Online(a) 1,900 72,409 ================================================================================ 429,296 2.22 INVESTMENT ADVISER/BROKER DEALER SERVICES Legg Mason 1,300 93,379 Lehman Brothers Holdings 1,500 98,595 Morgan Stanley 2,000 97,580 ================================================================================ 289,554 0.40 INVESTMENT COMPANIES iShares Trust NASDAQ Biotechnology Index Fund(a) 700 51,674 ================================================================================ 1.05 LEISURE FACILITIES InterActiveCorp(a) 3,700 136,937 ================================================================================ 0.61 LEISURE PRODUCTS Marvel Enterprises(a) 3,600 78,840 ================================================================================ SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- 1.25 MANAGED HEALTH CARE Aetna Inc 1,300 $ 74,100 UnitedHealth Group 1,800 88,974 ================================================================================ 163,074 1.47 MOVIES & ENTERTAINMENT AOL Time Warner(a) 5,900 96,524 Viacom Inc Class B Shrs 2,100 94,500 ================================================================================ 191,024 1.60 MULTI-LINE INSURANCE American International Group 3,500 208,495 ================================================================================ 1.74 NETWORKING EQUIPMENT Cisco Systems(a) 11,800 225,970 ================================================================================ 0.74 OFFICE ELECTRONICS Zebra Technologies Class A Shrs(a) 1,800 96,516 ================================================================================ 0.80 OIL & GAS DRILLING Nabors Industries Ltd(a) 800 32,120 Noble Corp(a) 2,000 72,360 ================================================================================ 104,480 0.95 OIL & GAS EQUIPMENT & SERVICES Halliburton Co 2,800 67,704 Weatherford International Ltd(a) 1,500 56,370 ================================================================================ 124,074 2.74 OIL & GAS EXPLORATION & PRODUCTION Apache Corp 2,095 144,513 Devon Energy 1,300 67,275 Pogo Producing 1,600 73,536 Talisman Energy 1,500 71,175 ================================================================================ 356,499 0.72 PACKAGED FOODS & MEATS General Mills 1,400 64,904 SYSCO Corp 900 28,314 ================================================================================ 93,218 0.54 PERSONAL PRODUCTS Avon Products 1,100 70,510 ================================================================================ 12.78 PHARMACEUTICALS Alcon Inc 1,800 94,050 Barr Laboratories(a) 650 43,986 Bristol-Myers Squibb 2,000 50,740 Eli Lilly & Co 1,100 73,183 Eon Labs(a) 1,200 40,524 Forest Laboratories(a) 800 37,600 Johnson & Johnson 4,500 223,110 Merck & Co 3,600 181,152 Pfizer Inc 9,300 278,256 Pharmaceutical HOLDRs Trust(b) 1,600 118,128 Pharmaceutical Resources(a) 2,000 111,880 SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- Taro Pharmaceutical Industries Ltd(a) 1,400 $ 75,586 Teva Pharmaceutical Industries Ltd Sponsored ADR Representing Ord Shrs 3,600 211,363 Wyeth 2,900 124,265 ================================================================================ 1,663,823 1.44 PROPERTY & CASUALTY INSURANCE SAFECO Corp 1,800 64,908 Travelers Property Casualty Class A Shrs 3,800 58,482 W.R. Berkley 1,950 64,506 ================================================================================ 187,896 1.23 PUBLISHING & PRINTING Gannett Co 700 54,894 Knight-Ridder Inc 800 54,288 Tribune Co 1,100 50,875 ================================================================================ 160,057 0.35 RAILROADS Norfolk Southern 2,400 45,696 ================================================================================ 0.76 SEMICONDUCTOR EQUIPMENT Applied Materials(a) 4,600 99,360 ================================================================================ 6.44 SEMICONDUCTORS Intel Corp 11,500 329,130 Maxim Integrated Products 2,900 130,239 OmniVision Technologies(a) 1,400 62,146 Semiconductor HOLDRs Trust(b) 6,600 246,774 Xilinx Inc(a) 2,300 70,932 ================================================================================ 839,221 1.67 SOFT DRINKS Coca-Cola Co 1,700 73,984 Cott Corp(a) 3,100 72,044 PepsiCo Inc 1,600 71,264 ================================================================================ 217,292 0.33 SPECIALTY CHEMICALS Eastman Chemical 1,200 42,972 ================================================================================ 3.52 SYSTEMS SOFTWARE Microsoft Corp 13,500 358,020 Oracle Corp(a) 7,900 100,962 ================================================================================ 458,982 0.53 TRUCKING C.H. Robinson Worldwide 1,800 68,346 ================================================================================ 3.47 WIRELESS TELECOMMUNICATION SERVICES AT&T Wireless Services(a) 16,200 139,644 Vimple-Communications Sponsored ADR Representing 3/4 Ord Shr(a) 800 43,128 Vodafone Group PLC Sponsored ADR Representing 10 Ord Shrs 6,500 118,950 SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- Wireless HOLDRs Trust(b) 3,700 $ 150,331 ================================================================================ 452,053 TOTAL COMMON STOCKS (COST $10,481,119) 12,188,388 ================================================================================ 4.69 SHORT-TERM INVESTMENTS - INVESTMENT COMPANIES INVESCO Treasurer's Series Money Market Reserve Fund(c) 0.934% (Cost $610,770) 610,770 610,770 ================================================================================ 0.40 OPTIONS PURCHASED - PUTS 0.40 SECURITIES INDEX OPTIONS S&P 500 Index, 12/20/2003 950, $25.50 15 33,225 995, $38.00 5 18,225 ================================================================================ TOTAL OPTIONS PURCHASED (COST $89,060) 51,450 ================================================================================ 98.68 TOTAL INVESTMENTS AT VALUE (COST $11,180,949) 12,850,608 ================================================================================ 1.32 OTHER ASSETS LESS LIABILITIES 172,098 ================================================================================ 100.00 NET ASSETS AT VALUE $ 13,022,706 ================================================================================ ADVANTAGE GLOBAL HEALTH SCIENCES FUND 106.55 COMMON STOCKS & WARRANTS 17.10 BIOTECHNOLOGY Amgen Inc(a)(d) 146,900 $ 9,680,710 Biotech HOLDRs Trust(a)(b) 45,400 5,985,536 Chiron Corp(a) 65,400 3,323,628 Exelixis Inc(a) 7,126 51,664 Genentech Inc(a) 92,800 7,368,320 GenoPlex Inc(a)(c)(g) 3,663,120 1 Genzyme Corp-General Division(a) 101,200 4,771,580 Gilead Sciences(a) 64,960 4,332,832 Invitrogen Corp(a) 10,300 594,001 MGI Pharma(a) 90,000 3,473,100 Neurogenetics Inc(a)(g) 67,828 67,828 Orchid BioSciences Warrants(a) (Exp 2004) 179,910 16,192 ================================================================================ 39,665,392 2.78 HEALTH CARE DISTRIBUTORS AdvancePCS Class A Shrs(a) 100,800 4,050,144 Express Scripts(a) 37,000 2,397,970 ================================================================================ 6,448,114 19.80 HEALTH CARE EQUIPMENT AeroGen Inc(a) 94,896 47,448 Biomet Inc 141,100 4,194,903 Boston Scientific(a) 137,700 8,275,770 C.R. Bard 95,600 6,405,200 Dade Behring Holdings(a) 50,000 1,395,000 Guidant Corp 80,200 4,026,040 Medtronic Inc(e) 116,100 5,756,238 SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- Sensys Medical Warrants (Exp 8/2006)(a)(c)(g) 8,264 $ 2 (Exp 9/2006)(a)(c)(g) 3,305 1 (Exp 10/2006)(a)(c)(g) 3,305 1 St Jude Medical(a) 47,220 2,458,745 Stryker Corp 67,600 5,124,080 Varian Medical Systems(a) 58,540 3,269,459 Zimmer Holdings(a) 96,420 4,988,771 ================================================================================ 45,941,658 8.09 HEALTH CARE FACILITIES Community Health Systems(a) 107,500 2,471,425 HCA Inc 115,400 4,384,046 Health Management Associates Class A Shrs 151,200 3,368,736 Triad Hospitals(a) 135,200 4,380,480 Universal Health Services Class B Shrs(a) 83,900 4,176,542 ================================================================================ 18,781,229 0.37 HEALTH CARE SUPPLIES Smith & Nephew PLC 133,900 859,893 ================================================================================ 17.82 MANAGED HEALTH CARE Aetna Inc 119,400 6,805,800 Anthem Inc(a) 94,800 6,939,360 Caremark Rx(a) 138,900 3,490,557 Coventry Health Care(a) 68,300 3,206,002 Health Net(a) 103,000 3,278,490 Mid Atlantic Medical Services(a) 62,600 3,071,156 UnitedHealth Group 134,700 6,658,221 WellChoice Inc(a) 40,000 1,160,800 WellPoint Health Networks(a) 86,500 6,747,000 ================================================================================ 41,357,386 40.59 PHARMACEUTICALS Abbott Laboratories 139,600 5,625,880 Alcon Inc 150,800 7,879,300 Allergan Inc 63,600 5,053,656 AstraZeneca PLC Sponsored ADR Representing Ord Shrs 145,000 5,749,250 Barr Laboratories(a) 58,950 3,989,146 Bristol-Myers Squibb 157,100 3,985,627 Eli Lilly & Co 73,400 4,883,302 Eon Labs(a) 1,100 37,147 GlaxoSmithKline PLC Sponsored ADR Representing 2 Ord Shrs 62,400 2,422,992 Johnson & Johnson(e) 116,760 5,788,961 Medco Health Solutions(a) 112,107 2,993,257 Merck & Co 86,300 4,342,616 Novartis AG Sponsored ADR Representing Ord Shrs 102,700 3,796,819 Pfizer Inc 156,608 4,685,711 Pharmaceutical Resources(a) 104,400 5,840,136 Predix Pharmaceuticals Warrants(a)(c)(g) (Exp 2004) 80,010 1 Ranbaxy Laboratories Ltd Sponsored GDR Representing Ord Shrs 125,000 2,911,250 SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- Roche Holdings AG Ltd Genusscheine 73,200 $ 5,605,441 Shire Pharmaceuticals Group PLC Sponsored ADR Representing 3 Ord Shrs 207,700 4,829,025 Teva Pharmaceutical Industries Ltd Sponsored ADR Representing Ord Shrs 154,340 9,061,610 Wyeth 109,600 4,696,360 ================================================================================ 94,177,487 TOTAL COMMON STOCKS & WARRANTS (COST $208,541,565) 247,231,159 ================================================================================ 15.50 PREFERRED STOCKS & WARRANTS 2.77 BIOTECHNOLOGY Cellomics Inc, Pfd, Series AA Shrs(a)(g) 8,869,999 2,413,058 Cengent Therapeutics, Conv Pfd, Series D Shrs(a)(g) 650,407 4,000,003 Ingenex Inc, Conv Pfd, Series B Shrs(a)(g) 103,055 1 ================================================================================ 6,413,062 7.25 HEALTH CARE DISTRIBUTORS Dexcom Inc, Pfd Series B Shrs(a)(c)(g) 694,444 1,597,221 Series C Shrs(a)(c)(g) 434,782 1,000,000 Locus Discovery, Pfd Series C Shrs(a)(c)(g) 2,000,000 8,000,000 Series D Shrs(a)(c)(g) 588,235 2,352,940 NeoThermia Corp, Pfd, Series C Shrs(a)(c)(g) 2,439,026 2,463,416 Syrrx Inc, Pfd, Series C Shrs(a)(g) 615,385 1,415,386 ================================================================================ 16,828,963 5.36 HEALTH CARE EQUIPMENT Adeza Biomedical, Pfd Series 2 Shrs(a)(c)(g) 416,666 1,929,164 Series 5 Shrs(a)(c)(g) 97,192 449,999 AFx Inc, Pfd, Series AA Shrs(a)(c)(g) 1,500,000 705,000 Athersys Inc, Conv Pfd, Class F Shrs(a)(g) 416,667 5,416,667 Masimo Corp, Pfd Series C Shrs(a)(g) 125,000 1,000,000 Series F Shrs(a)(g) 15,909 174,999 Optimize Inc, Pfd Series 4 Shrs(a)(c)(g) 7,000,000 1 Series 5 Shrs(a)(c)(g) 3,211,336 1 Warrants (to purchase Pfd Shrs)(a)(c)(g) (Exp 2007) 676,105 1 Scimagix Inc, Pfd, Series C Shrs(a)(g) 641,635 1,350,000 Sensys Medical, Pfd Series C Shrs(a)(c)(g) 586,748 488,368 Series D Shrs(a)(c)(f)(g) 369,967 923,808 UltraGuide Inc, Pfd Series E Shrs(a)(g) 445,050 1 Series F Shrs(a)(g) 50,000 1 ================================================================================ 12,438,010 0.12 PHARMACEUTICALS Predix Pharmaceuticals, Conv Pfd, Series A Shrs(a)(c)(g) 32,418 286,362 ================================================================================ SHARES OR NUMBER OF % DESCRIPTION CONTRACTS VALUE - -------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS & WARRANTS (COST $56,792,726) $ 35,966,397 ================================================================================ 0.01 SHORT-TERM INVESTMENTS - INVESTMENT COMPANIES INVESCO Treasurer's Series Money Market Reserve Fund(c) 0.934% (Cost $29,726) 29,726 29,726 ================================================================================ 122.06 TOTAL INVESTMENTS AT VALUE (COST $265,364,017) 283,227,282 ================================================================================ (22.06) OTHER ASSETS LESS LIABILITIES (51,195,016) ================================================================================ 100.00 NET ASSETS AT VALUE $ 232,032,266 ================================================================================ (a) Security is non-income producing. (b) HOLDRs - Holding Company Depositary Receipts. (c) Security is an affiliated company (Note 4). (d) A portion of the security is pledged with broker as collateral for securities sold short. (e) A portion of the security has been designated as collateral for remaining commitments to purchase additional shares of Sensys Medical, Pfd, Series D Shrs. (f) The Advantage Global Health Sciences Fund has remaining commitments of $333,335 to purchase 133,494 shares of Sensys Medical, Pfd, Series D Shrs, which are subject to terms of the agreement. (g) The following are restricted and illiquid securities that are valued at fair value at August 31, 2003: SCHEDULE OF RESTRICTED AND ILLIQUID SECURITIES VALUE AS A % ACQUISITION ACQUISITION OF NET ASSETS DESCRIPTION DATE(S) COST VALUE AT VALUE - ----------------------------------------------------------------------------------------------------------------- ADVANTAGE GLOBAL HEALTH SCIENCES FUND Adeza Biomedical, Pfd Series 2 Shrs 12/21/94 $ 999,998 $ 1,929,164 0.83% Series 5 Shrs 9/20/01 449,999 449,999 0.19 AFx Inc, Pfd, Series AA Shrs 8/14/98 3,000,000 705,000 0.30 Athersys Inc, Conv Pfd, Class F Shrs 4/17/00 5,000,000 5,416,667 2.34 Cellomics Inc, Pfd, Series AA Shrs 10/2/00 6,999,992 2,413,058 1.04 Cengent Therapeutics (formerly Structural Bioinformatics), Conv Pfd, Series D Shrs 3/24/00 4,000,003 4,000,003 1.72 Dexcom Inc, Pfd Series B Shrs 12/20/00 1,000,000 1,597,221 0.69 Series C Shrs 6/3/02 1,000,000 1,000,000 0.43 GenoPlex Inc 9/15/97- 6/25/98 408,490 1 0.00 Ingenex Inc, Conv Pfd, Series B Shrs 9/27/94 600,000 1 0.00 Locus Discovery, Pfd Series C Shrs 11/21/00 4,500,000 8,000,000 3.45 Series D Shrs 9/6/01 2,352,940 2,352,940 1.02 Masimo Corp, Pfd Series C Shrs 10/7/98 1,000,000 1,000,000 0.43 Series F Shrs 9/14/99 174,999 174,999 0.08 NeoThermia Corp, Pfd, Series C Shrs 3/26/01 2,000,001 2,463,416 1.06 Neurogenetics Inc 9/15/97- 6/25/98 202,031 67,828 0.03 SCHEDULE OF RESTRICTED AND ILLIQUID SECURITIES (CONTINUED) VALUE AS A % ACQUISITION ACQUISITION OF NET ASSETS DESCRIPTION DATE(S) COST VALUE AT VALUE - ----------------------------------------------------------------------------------------------------------------- ADVANTAGE GLOBAL HEALTH SCIENCES FUND (CONTINUED) Optimize Inc, Pfd Series 4 Shrs 8/15/00 $ 7,000,000 $ 1 0.00% Series 5 Shrs 6/7/02- 10/11/02 1,506,029 1 0.00 Warrants (Exp 2007) 6/27/02- 9/11/02 4 1 0.00 Predix Pharmaceuticals (formerly Physiome Sciences) Conv Pfd, Series A Shrs 11/7/97 1,499,993 286,362 0.12 Warrants (Exp 2004) 8/26/03 5 1 0.00 Scimagix Inc, Pfd, Series C Shrs 5/24/01 1,350,000 1,350,000 0.58 Sensys Medical Pfd, Series C Shrs 2/25/98- 8/31/00 5,934,956 488,368 0.21 Pfd, Series D Shrs 8/16/01- 5/29/02 923,808 923,808 0.40 Warrants (Exp 8/2006) 10/18/01 2 2 0.00 (Exp 9/2006) 10/5/01 1 1 0.00 (Exp 10/2006) 11/7/01 1 1 0.00 Syrrx Inc, Pfd, Series C Shrs 1/10/01 4,000,003 1,415,386 0.61 UltraGuide Inc, Pfd Series E Shrs 6/1/01 1,348,502 1 0.00 Series F Shrs 6/1/01 151,500 1 0.00 ================================================================================================================= $ 57,403,257 $ 36,034,231 15.53% ================================================================================================================= SECURITIES SOLD SHORT DESCRIPTION SHARES VALUE - ----------------------------------------------------------------------------------------------------------------- ADVANTAGE GLOBAL HEALTH SCIENCES FUND Genta Inc (45,000) $ (721,800) Schering-Plough Corp (200,000) (3,038,000) ================================================================================================================= $ (3,759,800) ================================================================================================================= See Notes to Financial Statements FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES INVESCO COUNSELOR SERIES FUNDS, INC. AUGUST 31, 2003 ADVANTAGE ADVANTAGE GLOBAL HEALTH FUND SCIENCES FUND - ----------------------------------------------------------------------------------------------------------------- ASSETS Investment Securities: At Cost $11,180,949 $ 265,364,017 ================================================================================================================ At Value $12,850,608 $ 283,227,282 Foreign Currency (Cost $790 and $0, respectively) 766 0 Deposits with Broker for Securities Sold Short 169,727 5,430,789 Receivables: Investment Securities Sold 0 4,086,108 Fund Shares Sold 5,056 184,570 Dividends and Interest 10,876 239,390 Prepaid Expenses and Other Assets 18,151 75,293 ================================================================================================================ TOTAL ASSETS 13,055,184 293,243,432 ================================================================================================================ LIABILITIES Securities Sold Short at Value (Proceeds $0 and $3,468,018, respectively) 0 3,759,800 Payables: Custodian 0 111,501 Investment Securities Purchased 0 2,633,831 Securities Sold Short Purchased 0 1,595,250 Fund Shares Repurchased 12,408 884,798 Borrowings on Line of Credit 0 52,000,000 Accrued Distribution Expenses Class A 1,286 63,290 Class B 4,914 645 Class C 2,305 282 Accrued Expenses and Other Payables 11,565 161,769 ================================================================================================================ TOTAL LIABILITIES 32,478 61,211,166 ================================================================================================================ NET ASSETS AT VALUE $13,022,706 $ 232,032,266 ================================================================================================================ NET ASSETS Paid-in Capital(a) $54,848,638 $ 280,532,572 Accumulated Undistributed Net Investment Loss (2,067) (187,267) Accumulated Undistributed Net Realized Loss on Investment Securities, Securities Sold Short, Foreign Currency Transactions and Option Contracts (43,493,500) (65,443,705) Net Appreciation of Investment Securities, Securities Sold Short, Foreign Currency Transactions and Option Contracts 1,669,635 17,130,666 ================================================================================================================ NET ASSETS AT VALUE, Applicable to Shares Outstanding $13,022,706 $ 232,032,266 ================================================================================================================ NET ASSETS AT VALUE: Class A $ 4,420,441 $ 230,955,127 ================================================================================================================ Class B $ 5,883,100 $ 761,150 ================================================================================================================ Class C $ 2,719,165 $ 315,989 ================================================================================================================ STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) INVESCO COUNSELOR SERIES FUNDS, INC. AUGUST 31, 2003 ADVANTAGE ADVANTAGE GLOBAL HEALTH FUND SCIENCES FUND (CONTINUED) (CONTINUED) - ----------------------------------------------------------------------------------------------------------------- Shares Outstanding Class A 794,175 17,911,290 Class B 1,068,121 60,360 Class C 496,889 25,743 ================================================================================================================= NET ASSET VALUE PER SHARE: Class A Redemption Price per Share $ 5.57 $ 12.89 Offering Price per Share (Maximum sales charge of 5.50%) $ 5.89 $ 13.64 Class B, Offering and Redemption Price per Share $ 5.51 $ 12.61 Class C, Offering and Redemption Price per Share $ 5.47 $ 12.27 ================================================================================================================= (a) The INVESCO Counselor Series Funds, Inc. have 4 billion authorized shares of common stock, par value of $0.01 per share. Of such shares, 600 million have been allocated to Advantage Fund and 600 million to Advantage Global Health Sciences Fund: 200 million to each Class. See Notes to Financial Statements STATEMENT OF OPERATIONS INVESCO COUNSELOR SERIES FUNDS, INC. YEAR ENDED AUGUST 31, 2003 ADVANTAGE ADVANTAGE GLOBAL HEALTH FUND SCIENCES FUND - ----------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends $ 138,000 $ 2,201,250 Dividends from Affiliated Investment Companies 976 6 Interest 42,905 221,982 Securities Loaned Income 0 12,432 Foreign Taxes Withheld 0 (39,301) ================================================================================================================= TOTAL INCOME 181,881 2,396,369 ================================================================================================================= EXPENSES Investment Advisory Fees 129,351 1,246,546 Distribution Expenses 110,469 303,671 Transfer Agent Fees 101,508 692,847 Administrative Services Fees 16,434 119,204 Custodian Fees and Expenses 20,331 97,418 Directors' Fees and Expenses 9,538 26,078 Interest Expenses 9,451 1,345,715 Professional Fees and Expenses 45,896 91,363 Registration Fees and Expenses Class A 11,536 23,454 Class B 9,403 4,032 Class C 8,821 4,022 Reports to Shareholders 13,712 135,226 Dividends on Securities Sold Short 6,450 46,950 Other Expenses 6,318 97,534 ================================================================================================================= TOTAL EXPENSES 499,218 4,234,060 Fees and Expenses Absorbed/Reimbursed by Investment Adviser 0 (151,826) Fees and Expenses Paid Indirectly (189) (1,101) ================================================================================================================= NET EXPENSES 499,029 4,081,133 ================================================================================================================= NET INVESTMENT LOSS (317,148) (1,684,764) ================================================================================================================= REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES Net Realized Gain (Loss) on: Investment Securities (1,382,040) 1,978,067 Securities Sold Short (463,837) 573,236 Foreign Currency Transactions 0 6,237 Option Contracts 679,597 132,646 ================================================================================================================= Total Net Realized Gain (Loss) (1,166,280) 2,690,186 ================================================================================================================= Change in Net Appreciation/Depreciation of: Investment Securities 2,210,284 18,204,129 Securities Sold Short 182,137 (1,308,095) Foreign Currency Transactions 0 536,204 Option Contracts (69,655) 0 ================================================================================================================= Total Change in Net Appreciation/Depreciation 2,322,766 17,432,238 ================================================================================================================= NET GAIN ON INVESTMENT SECURITIES, SECURITIES SOLD SHORT, FOREIGN CURRENCY TRANSACTIONS AND OPTION CONTRACTS 1,156,486 20,122,424 ================================================================================================================= NET INCREASE IN NET ASSETS FROM OPERATIONS $ 839,338 $ 18,437,660 ================================================================================================================= See Notes to Financial Statements STATEMENT OF CHANGES IN NET ASSETS ADVANTAGE FUND YEAR ENDED AUGUST 31 - -------------------------------------------------------------------------------- 2003 2002 OPERATIONS Net Investment Loss $ (317,148) $ (706,293) Net Realized Loss (1,166,280) (13,398,937) Change in Net Appreciation/Depreciation 2,322,766 (277,010) =============================================================================== NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 893,338 (14,382,240) =============================================================================== DISTRIBUTIONS TO SHAREHOLDERS -- RETURN OF CAPITAL Class A (33,820) 0 Class B (40,746) 0 Class C (22,060) 0 =============================================================================== TOTAL DISTRIBUTIONS (96,626) 0 =============================================================================== FUND SHARE TRANSACTIONS Proceeds from Sales of Shares Class A 584,185 733,419 Class B 45,695 422,729 Class C 40,217 758,204 Reinvestment of Distributions Class A 23,565 0 Class B 17,179 0 Class C 14,885 0 =============================================================================== 725,726 1,914,352 Amounts Paid for Repurchases of Shares Class A (3,163,734) (22,297,404) Class B (2,343,100) (6,961,035) Class C (2,076,063) (8,037,898) =============================================================================== (7,582,897) (37,296,337) NET DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (6,857,171) (35,381,985) =============================================================================== TOTAL DECREASE IN NET ASSETS (6,114,459) (49,764,225) NET ASSETS Beginning of Period 19,137,165 68,901,390 =============================================================================== End of Period (Including Accumulated Undistributed Net Investment Loss of ($2,067) and ($1,590), respectively) $13,022,706 $ 19,137,165 =============================================================================== See Notes to Financial Statements STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) ADVANTAGE GLOBAL HEALTH SCIENCES FUND YEAR ENDED AUGUST 31 - -------------------------------------------------------------------------------- 2003 2002 OPERATIONS Net Investment Loss $ (1,684,764) $ (6,135,983) Net Realized Gain (Loss) 2,690,186 (65,759,719) Change in Net Appreciation/Depreciation 17,432,238 (2,856,747) =============================================================================== NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 18,437,660 (74,752,449) =============================================================================== FUND SHARE TRANSACTIONS Proceeds from Sales of Shares Class A 217,446,224 2,135,388 Class B 118,288 1,089,786 Class C 1,679,546 1,166,849 =============================================================================== 219,244,058 4,392,023 Amounts Paid for Repurchases of Shares Class A (279,916,500) (131,628,708) Class B (282,279) (272,668) Class C (1,869,781) (844,055) =============================================================================== (282,068,560) (132,745,431) NET DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (62,824,502) (128,353,408) =============================================================================== (44,386,842) (203,105,857) TOTAL DECREASE IN NET ASSETS NET ASSETS Beginning of Period 276,419,108 479,524,965 =============================================================================== End of Period (Including Accumulated Undistributed Net Investment Loss of ($187,267) and ($181,959), respectively) $232,032,266 $ 276,419,108 =============================================================================== See Notes to Financial Statements STATEMENT OF CASH FLOWS ADVANTAGE GLOBAL HEALTH SCIENCES FUND YEAR ENDED AUGUST 31 - -------------------------------------------------------------------------------- 2003 INCREASE (DECREASE) IN CASH - -------------------------------------------------------------------------------- CASH FLOWS FROM OPEATING ACTIVITIES: Dividends and Interest Income Received, Net of Foreign Taxes Withheld $ 2,419,090 Expenses Paid (4,194,021) Purchases Net of Sales of Short-Term Investments (29,726) Purchases of Investment Securities (381,607,280) Sales of Investment Securities 440,030,705 Proceeds of Securiites Sold Short 55,168,899 Cover for Securities Sold Short (95,814,684) Realized Gain from Foreign Currency Transactions 6,237 Realized Gain from Written Option Contracts 132,646 Change in Deposits with Broker for Securities Sold Short 40,434,526 Change in Prepaid Expenses and Other Assets 18,770 Change in Other Investments (Note 5) 10,440,000 Change in Payable for Securities Loaned (10,440,000) ================================================================================ Net Cash Flows From Operating Activities 56,565,162 ================================================================================ CASH FLOWS USED FOR FINANCING ACTIVITIES: Net Borrowings on Line of Credit 6,500,000 Sales of Fund Shares 219,081,395 Repurchases of Fund Shares (282,157,730) Increase in Payable to Custodian 11,173 ================================================================================ Net Cash Flows Used for Financing Activities (56,565,162) ================================================================================ Net Increase in Cash 0 Cash at Beginning of Year 0 ================================================================================ Cash at End of Year $ 0 ================================================================================ RECONCILIATION OF NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS TO NET CASH FLOWS FROM OPERATING ACTIVITIES Net Increase in Net Assets from Operations $ 18,437,660 ================================================================================ Decrease in Investment Securities and Securities Sold Short 61,238,596 Net Realized Gain on Investment Securities, Securities Sold Short, Option Contracts and Foreign Currency Transactions (2,690,186) Change in Appreciation/Depreciation of Investment Securities, Securities Sold Short and Foreign Currency Transactions (17,432,238) Increase in Receivable for Investment Securities Sold (3,253,477) Decrease in Payable for Investment Securities Purchased (413,171) Decrease in Dividends and Interest Receivable 22,721 Decrease in Deposits with Broker for Securities Sold Short 40,434,526 Decrease in Prepaid Expenses and Other Assets 18,770 Increase in Accrued Expenses and Other Payables 112,888 Decrease in Payable for Securities Sold Short Purchased (39,910,927) ================================================================================ Total Adjustments 38,127,502 ================================================================================ Net Cash Flows From Operating Activities $ 56,565,162 ================================================================================ Supplemental disclosure of cash flow information: Interest Paid $1,345,503. See Notes to Financial Statements NOTES TO FINANCIAL STATEMENTS INVESCO COUNSELOR SERIES FUNDS, INC. NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Counselor Series Funds, Inc. is incorporated in Maryland and presently consists of two separate Funds: Advantage Fund and Advantage Global Health Sciences Fund (individually the "Fund" and collectively, the "Funds"). The investment objectives of the Funds are: to seek aggressive capital appreciation for Advantage Fund and to seek capital appreciation through investments in the health science related business sectors for Advantage Global Health Sciences Fund. INVESCO Counselor Series Funds, Inc. is registered under the Investment Company Act of 1940 (the "Act") as an open-end management investment company. Effective September 30, 2003, Advantage Global Health Sciences Fund will change its name to Advantage Health Sciences Fund. Effective October 1, 2003, the name of INVESCO Counselors Series Funds, Inc. will change to A I M Counselor Series Funds, Inc. Income, expenses (other than those attributable to a specific class) and realized and unrealized 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 ranging from 5.50% to 2.00% of the offering price on purchases of less than $1,000,000. Class B shares and Class C shares are subject to a contingent deferred sales charge paid by the redeeming shareholder. Class B shares convert to Class A shares after eight years along with a pro rata portion of its reinvested dividends and distributions. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their 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. As disclosed in the Statement of Investment Securities and the accompanying Schedule of Restricted and Illiquid Securities for the Advantage Global Health Sciences Fund, securities valued at $36,034,231 (15.53 percent of net assets), have been estimated by the Board of Directors in the absence of readily available market values. Those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. A. SECURITY VALUATION -- Domestic (U.S.) 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 closing bid price for 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. Foreign equity securities are valued at the closing price. The closing price is designated by the principal stock exchange in the country in which the securities are traded. In the event that closing prices are not available for foreign securities, a snapshot of 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. Option Contracts are valued at the average of the closing bid and ask prices from the exchange with the highest trading volume on that particular day. Investments in shares of investment companies are valued at the net asset value of the respective fund as calculated each day. If market quotations or pricing service valuations are not readily available, or events or cicumstances that may affect the value of portfolio securities are identified between the closing of their principal markets and the time that the net asset value per share is determined, securities are valued at fair value as determined in good faith under procedures established by the Fund's board of directors. Restricted and illiquid securities are valued in accordance with procedures established by the Fund's board of directors. Short-term securities are stated at amortized cost (which approximates market value) if maturity is 60 days or less at the time of purchase, or market value if maturity is greater than 60 days. 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. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions are accounted for on the trade date and dividend income is recorded on the ex-dividend date. Interest income, which may be comprised of stated coupon rate, market discount, original issue discount or amortized premium, is recorded on the accrual basis. Cost is determined on the specific identification basis. 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. Investment income received from foriegn sources may be subject to foreign withholding taxes. Dividend and interest income is shown gross of foreign withholding taxes in the accompanying financial statements. Income and expenses on foreign securities are translated into U.S. dollars at rates of exchange prevailing when accrued. The cost of foreign securities is translated into U.S. dollars at the rates of exchange prevailing when such securities are acquired. The receivable for investment securities sold for Advantage Global Health Sciences Fund is net of an allowance for doubtful accounts of $440,974 for Norian Corp, Conv Pfd, Series D Shares. Each 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. During the year ended August 31, 2003, Advantage and Advantage Global Health Sciences Funds invested in INVESCO Treasurer's Series Money Market Reserve Fund. The income from this investment is recorded in the Statement of Operations. The Fund may have elements of risk due to 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. Restricted securities held by a Fund may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of a Fund to sell a security at a fair price and may substantially delay the sale of the security which each Fund seeks to sell. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist. C. 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. D. TAX INFORMATION -- 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. The tax composition of distributions from ordinary income, long-term capital gains and of the ordinary income distributions declared for the year ended August 31, 2003, was a tax return of capital of $96,626 for Advantage Fund. The tax components of the Fund at August 31, 2003 include: COST OF GROSS TAX GROSS TAX NET TAX INVESTMENTS FOR UNREALIZED UNREALIZED APPRECIATION FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS - ------------------------------------------------------------------------------------------------------------------------------------ Advantage Fund $ 11,231,344 $ 1,814,984 $ 195,720 $ 1,619,264 Advantage Global Health Sciences Fund 270,543,942 43,365,886 30,682,546 12,683,340 ACCUMULATED CUMULATIVE EFFECT CAPITAL LOSS OF OTHER FUND CARRYOVERS TIMING DIFFERENCES - ------------------------------------------------------------------------------------------------------------------------------------ Advantage Fund $ (43,292,395) $ (152,777) Advantage Global Health Sciences Fund (60,263,780) (187,267) The primary difference between book and tax appreciation/depreciation is wash sale loss deferrals. The net tax appreciation/depreciation on investments excludes the effect of securities sold short, written options activity, allowance for doubtful accounts and foreign currency transactions. Capital loss carryovers expire in the years 2010 and 2011. 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. The cumulative effect of other timing differences includes deferred post-October 31 capital losses deferred director's fees and foreign currency transactions. Deferred post-October 31 capital losses are: Advantage Fund $188,320. Due to inherent differences in the recognition of income, expenses and realized gain/losses under accounting principles generally accepted in the United States and Federal income tax purposes, permanent and temporary differences between book and tax basis reporting have been identified and appropriately reclassed on the Statement of Assets and Liabilities. Advantage and Advantage Global Health Sciences Funds reclassified $413,195 and $1,710,850, respectively, of net investment losses to paid-in capital. E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward foreign currency contracts in connection with planned purchases or sales of securities as a hedge against fluctuations in foreign exchange rates pending the settlement of transactions in foreign securities. 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. F. OPTION CONTRACTS -- The Fund may buy or write put and call options, including securities index options, on portfolio securities for hedging purposes or as a substitute for an investment. The Funds generally invest in options to hedge against adverse movements in the value of portfolio 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 buying or 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 written 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. Written option activity for the year ended August 31, 2003, was as follows: CALL OPTIONS PUT OPTIONS - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER AMOUNT NUMBER AMOUNT OF OPTIONS OF PREMIUMS OF OPTIONS OF PREMIUMS - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE FUND Options outstanding at August 31, 2002 (48) $ 19,005 (642) $ 101,108 Options written (5,291) 289,327 (9,661) 736,527 Options closed or expired 4,745 (268,650) 10,191 (823,491) Options exercised 594 (39,682) 112 (14,144) Options outstanding at August 31, 2003 0 $ 0 0 $ 0 ADVANTAGE GLOBAL HEALTH SCIENCES FUND Options outstanding at August 31, 2002 0 $ 0 Options written (1,000) 132,646 Options closed or expired 1,000 (132,646) Options outstanding at August 31, 2003 0 $ 0 G. SHORT SALES -- The Advantage Fund and Advantage Global Health Sciences Fund engage in short sales as part of their normal investment activities. Short sales are transactions in which the Fund sells a security 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. Short sales are fully collateralized by other securities which are noted in the Statement of Investment Securities. 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. H. CASH FLOWS -- The cash amount shown in the Statement of Cash Flows is the amount reported as cash in the Statement of Assets and Liabilities and represents cash on hand in its Custodian bank account and does not include any short-term investments or deposits with broker for securities sold short at August 31, 2003. I. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its behalf and, in addition, each Fund or Class bears a portion of general expenses, based on the relative net assets of each Fund or Class. Under an agreement between each Fund and the Fund's Custodian, certain Custodian Fees and Expenses are reduced by credits granted by the Custodian from any temporarily uninvested cash. Such credits are included in Fees and Expenses Paid Indirectly in the Statement of Operations. NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc. ("IFG") serves as the Fund's investment adviser. As compensation for its services to the Funds, IFG receives an investment advisory fee which is accrued daily at the applicable rate and paid monthly. The fee for Advantage and Advantage Global Health Sciences Funds is based on the annual rate of 1.50% (the "Base Fee") of average daily net assets. For these Funds the 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 Index (the "Index", the Russell 3000 Index for Advantage Fund and the Morgan Stanley Health Care Product Index for Advantage Global Health Sciences Fund), or (ii) downward at the rate of 0.20%, on a pro rata basis, for each percentage point that the 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% for Advantage and Advantage Global Health Sciences Funds. 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 A I M Distributors, Inc. ("ADI" or the "Distributor") effective July 1, 2003, and prior to July 1, 2003 to INVESCO Distributors, Inc. ("IDI"), both are subsidiaries of AMVESCAP PLC. Class A shares of the Fund pay compensation to the Distributor 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 the Distributor at a rate of 1.00% of annual average net assets. Of these amounts, the Distributor 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 the Distributor incurs with respect to each Fund in any fiscal year cannot be recovered in subsequent years. For the year ended August 31, 2003, amounts paid to the Distributor were as follows: CLASS CLASS CLASS FUND A B C - -------------------------------------------------------------------------------------------- Advantage Fund $ 18,281 $ 62,108 $ 34,630 Advantage Global Health Sciences Fund 229,023 8,191 4,526 Distribution Expenses for each class as presented in the Statement of Operations for the year ended August 31, 2003 were as follows: CLASS CLASS CLASS FUND A B C - ------------------------------------------------------------------------------------------- Advantage Fund $ 17,503 $ 60,108 $ 32,858 Advantage Global Health Sciences Fund 291,229 8,070 4,372 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. Aggregate fees collected for such omnibus accounts for the year ended August 31, 2003 amounted to $29,621 for Advantage Fund and $72,775 for Advantage Global Health Sciences Fund, respectively, of which $17,666 and $33,390, respectively, was retained by IFG. 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. Effective October 1, 2003, A I M Fund Services, Inc. will assume all responsibilities under the existing Transfer Agency Agreement. Transfer agent fees for each class as presented in the Statement of Operations for the year ended August 31, 2003 were as follows: CLASS CLASS CLASS FUND A B C - -------------------------------------------------------------------------------------------- Advantage Fund $ 48,008 $ 30,801 $ 22,699 Advantage Global Health Sciences Fund 687,223 3,049 2,575 In accordance with an Administrative Services Agreement, each 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. IFG has voluntarily agreed to absorb and assume certain fees and expenses incurred by Advantage Global Health Sciences Fund. For the year ended August 31, 2003, total fees and expenses voluntarily abosrbed for Advantage Global Health Sciences Fund were: Class A $151,119, Class B $490 and Class C $217, respectively. NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended August 31, 2003, 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: FUND PURCHASES SALES - -------------------------------------------------------------------------------- Advantage Fund $ 24,666,269 $ 31,513,724 Advantage Global Health Sciences Fund 381,194,109 440,657,471 There were no purchases or sales of U.S. Government securities. NOTE 4 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the Funds' officers and directors are also officers and directors of IFG, ADI or IDI. At August 31, 2003, 5.66% of the outstanding shares of Advantage Fund - Class A shares were held by affiliated parties. Each Fund has adopted an unfunded retirement 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 as defined in the plan agreement, as amended March 1, 2001. Effective November 8, 2002, the plan provides that a director, prior to retirement, may elect to convert amounts accrued under this plan into a new deferred retirement plan and all eligible directors have elected to convert to the new deferred retirement plan. Pension expenses for the year ended August 31, 2003, included in Directors' Fees and Expenses in the Statement of Operations, and unfunded accrued pension costs and pension liability included in Prepaid Expenses and Accrued Expenses, respectively, in the Statement of Assets and Liabilities were as follows: PENSION PENSION FUND EXPENSES LIABILITY - -------------------------------------------------------------------------------- Advantage Fund $ 543 $ 566 Advantage Global Health Sciences Fund 5,700 3,786 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. An affiliated company represents ownership by a Fund of at least 5% of the voting securities of the issuer or may be affiliated with other INVESCO investment companies during the period, as defined in the Act. A summary of the transactions during the year ended August 31, 2003, in which the issuer was an affiliate of the Fund, is as follows: PURCHASES/OTHER TRANSACTIONS SALES/OTHER TRANSACTIONS ---------------------------------------------------------- REALIZED GAIN SHARES OR SHARES OR (LOSS) ON PRINCIPAL PRINCIPAL INVESTMENT VALUE AT AFFILIATE AMOUNT COST AMOUNT PROCEEDS SECURITIES 8/31/2003 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANGATE FUND INVESCO Treasurer's Series Money Market Reserve Fund 1,470,786 $ 1,470,786 860,016 $ 860,016 $ 0 $ 610,770 ADVANTAGE GLOBAL HEALTH SCIENCES FUND Adeza Biomedical, Pfd Series 2 Shrs -- -- -- -- -- $ 1,929,164 Series 5 Shrs -- -- -- -- -- 449,999 AFx Inc, Pfd Series AA Shrs -- -- -- -- -- 705,000 Dexcom Inc, Pfd Series B Shrs -- -- -- -- -- 1,597,221 Series C Shrs -- -- -- -- -- 1,000,000 GenoPlex Inc -- -- -- -- -- 1 INVESCO Treasurer's Series Money Market Reserve Fund 119,952,949 $119,952,949 130,363,223 $ 130,363,223 $ 0 29,726 Locus Discovery, Pfd Series C Shrs -- -- -- -- -- 8,000,000 Series D Shrs -- -- -- -- -- 2,352,940 PURCHASES/OTHER TRANSACTIONS SALES/OTHER TRANSACTIONS -------------------------------------------------------- REALIZED GAIN SHARES OR SHARES OR (LOSS) ON PRINCIPAL PRINCIPAL INVESTMENT VALUE AT AFFILIATE AMOUNT COST AMOUNT PROCEEDS SECURITIES 8/31/2003 - ------------------------------------------------------------------------------------------------------------------------------------ ADVANTAGE GLOBAL HEALTH SCIENCES FUND (CONTINUED) NeoThermia Corp Pfd, Series C Shrs -- -- -- -- -- $ 2,463,416 Optimize Inc Conv Bridge Notes, 8.000% 12/3/2002 -- -- $ 232,929 $ 232,929 $ 0 -- 2/5/2003 -- -- $ 144,308 144,308 0 -- 3/11/2003 $ 172,153 $ 172,153 $ 172,153 172,153 0 -- Pfd Series C Shrs -- -- 2,631,579 7,000,000 0 -- Series 4 Shrs 7,000,000 7,000,000 -- -- -- 1 Series 5 Shrs 3,211,336 1,509,160 -- -- -- 1 Warrants (to purchase Pfd Shrs) (Exp 2007) 676,106 5 4 4 0 1 Predix Pharmaceuticals (formerly Physiome Sciences) Conv Pfd, Series A Shrs 32,418 1,499,994 -- -- -- 286,362 Conv Pfd, Series B Shrs -- -- 909,090 1,499,999 0 -- Warrants (Exp 8/2004) 80,010 5 -- -- -- 1 Sensys Medical (formerly Instrumentation Metrics) Pfd Series C Shrs -- -- -- -- -- 488,368 Series D Shrs -- -- -- -- -- 923,808 Warrants (Exp 8/2006) -- -- -- -- -- 2 (Exp 9/2006) -- -- -- -- -- 1 (Exp 10/2006) -- -- -- -- -- 1 Warrants (to purchase Pfd, Series D Shrs) (Exp 2003) -- -- 89,205 1 0 -- ==================================================================================================================================== $20,226,013 ==================================================================================================================================== Dividend income from INVESCO Treasurer's Series Money Market Reserve Fund is disclosed in the Statement of Operations. No dividend or interest income was received from any other of these affiliated companies. NOTE 5 -- SECURITIES LOANED. The Funds have entered into a securities lending agreement with the custodian. Under the terms of the agreement, the Funds receive income, recorded monthly, after deduction of other amounts payable to the custodian or to the borrower from lending transactions. In exchange for such fees, the custodian is authorized to loan securities on behalf of the Funds, against receipt of collateral at least equal in value to the value of the securities loaned. Cash collateral is invested by the custodian in the INVESCO Treasurer's Series Money Market Reserve Fund or securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund bears the risk of any deficiency in the amount of collateral available for return to a borrower due to a loss in an approved investment. The securities loaned income is recorded in the Statement of Operations. Of the securities lending income received for Advantage Global Health Sciences Fund $12,432 was received from INVESCO Treasurer's Series Money Market Reserve Fund. During the year ended August 31, 2003, there were no such securities lending arrangements for Advantage Fund. NOTE 6 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund lending agreement between each Fund and other INVESCO sponsored mutual funds, which permits 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 each Fund's prospectus, Advantage Fund and Advantage Global Health Sciences 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. During the year ended August 31, 2003, there were no such borrowings and/or lendings for any Fund. NOTE 7 -- LINES OF CREDIT. The Funds have 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 investment activities. The LOC permits borrowings to a maximum of 33 1/3% of the net assets at value for the Funds. The Funds agree to pay periodic fees and interest on the unpaid principal balance at prevailing market rates as defined in the LOC agreement. During the year ended August 31, 2003, Advantage and Advantage Global Health Sciences Funds borrowed cash at a weighted average rate ranging from 1.96% to 2.16%, respectively, and interest expense amounted to $9,451 and $1,345,503, respectively, for purposes of investing. At August 31, 2003, Advantage Global Health Sciences Fund had outstanding lines of credit at an estimtated interest rate of 1.79%. The amount of the borrowing and the related accrued interest are presented in the Statement of Assets and Liabilities. NOTE 8 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a 1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these shares within 18 months from the date of purchase. Effective November 15, 2002, qualified plans investing in Class A shares may pay a 1% CDSC if a shareholder redeemed these shares within 12 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% beginning at time of purchase to 0.00% at the beginning of the seventh year. A 1.00% CDSC is charged by Class C shares on redemptions or exchanges held thirteen months or less. Effective August 18, 2003, the 1.00% CDSC charged by Class C shares for redemptions or exchanges held thirteen months or less will change to twelve months or less. Shares acquired through reinvestment of dividends or other distributions are not charged a CDSC. The CDSC may be reduced or certain sales charge exceptions may apply. The CDSC is paid by the redeeming shareholder and therefore it is not an expense of the Fund. For the year ended August 31, 2003, the Distributor received the following CDSC from Class A, Class B and Class C shareholders: FUND CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- Advantage Fund $ 7 $ 153,163 $ 1,575 Advantage Global Health Sciences Fund 115 12,241 315 NOTE 9 -- SHARE INFORMATION. Changes in fund share transactions during the years ended August 31, 2003 and 2002 were as follows: ADVANTAGE GLOBAL ADVANTAGE FUND HEALTH SCIENCES FUND YEAR ENDED AUGUST 31 YEAR ENDED AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 2002 2003 2002 Shares Sold Class A 113,212 96,825 17,876,194 154,981 Class B 9,263 59,324 9,839 72,936 Class C 8,095 103,048 139,927 83,681 Shares Issued from Reinvestment of Distributions Class A 5,079 0 0 0 Class B 3,743 0 0 0 Class C 3,250 0 0 0 ==================================================================================================================================== 142,642 259,197 18,025,960 311,598 Shares Repurchased Class A (640,073) (3,207,346) (23,191,673) (9,799,857) Class B (473,557) (1,056,351) (24,387) (20,982) Class C (427,645) (1,224,817) (157,490) (61,927) ==================================================================================================================================== (1,541,275) (5,488,514) (23,373,550) (9,882,766) NET DECREASE IN FUND SHARES (1,398,633) (5,229,317) (5,347,590) (9,571,168) ==================================================================================================================================== NOTE 10 -- ADDITIONAL INFORMATION. On June 9, 2003, the board of directors for Advantage Fund ("Selling Fund") unanimously approved an Agreement and Plan of Reorganization (the "Plan") pursuant to which the Selling Fund, would transfer all of its assets and liabilities to A I M Opportunities Fund III, a series of A I M Special Opportunities Funds. The Plan has proposals for a new investment advisory agreement and a new administrative services agreement with A I M Advisors, Inc. The Plan is also seeking approval for a redomestication of the Funds, changing the domicile and form of organization of the Funds (which are currently organized as Maryland corporations) to a Delaware statutory trust. The Plan is more fully described in a proxy statement presented for shareholder consideration on August 25, 2003. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of INVESCO Counselor Series Funds, Inc. In our opinion, the accompanying statements of assets and liabilities, including the statement of investment securities, and the related statements of operations, of changes in net assets and of cash flows and the financial highlights present fairly, in all material respects, the financial position of the Advantage Fund and the Advantage Global Health Sciences Fund (constituting INVESCO Counselor Series Funds, Inc., and hereafter referred to as the "Funds") at August 31, 2003, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended, the cash flows for Advantage Global Health Sciences Fund for the year then ended and the financial highlights for each of the periods indicated, 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 Fundsi management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with 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 audits, which included confirmation of securities at August 31, 2003 by correspondence with the custodian and brokers and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Denver, Colorado October 9, 2003 FINANCIAL HIGHLIGHTS ADVANTAGE FUND -- CLASS A - ------------------------------------------------------------------------------------------------------------------------------------ (FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD) PERIOD ENDED YEAR ENDED AUGUST 31 AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 2002 2001 2000(a) PER SHARE DATA Net Asset Value-- Beginning of Period $ 5.13 $ 7.70 $ 10.24 $ 10.00 ==================================================================================================================================== INCOME FROM INVESTMENT OPERATIONS(b) Net Investment Income (Loss)(c) (0.11) (0.09) (0.04) 0.00 Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.58 (2.48) (2.02) 0.24 ==================================================================================================================================== TOTAL FROM INVESTMENT OPERATIONS 0.47 (2.57) (2.06) 0.24 ==================================================================================================================================== Less Dividends and Distributions 0.00 0.00 0.48 0.00 Tax Return of Capital 0.03 0.00 0.00 0.00 ==================================================================================================================================== TOTAL DISTRIBUTIONS 0.03 0.00 0.48 0.00 ==================================================================================================================================== Net Asset Value -- End of Period $ 5.57 $ 5.13 $ 7.70 $ 10.24 ==================================================================================================================================== TOTAL RETURN(d) 9.35% (33.38%) (21.20%) 2.40%(e) RATIOS Net Assets -- End of Period ($000 Omitted) $ 4,420 $ 6,753 $ 34,086 $ 41,413 Ratio of Expenses to Average Net Assets (including dividends on securities sold short)(f) 3.42% 2.50% 2.51% 1.82%(g) Ratio of Expenses to Average Net Assets (excluding dividends on securities sold short)(f) 3.38% 2.34% 2.41% 1.82%(g) Ratio of Net Investment Income (Loss) to Average Net Assets (2.15%) (1.35%) (0.26%) 3.28%(g) Portfolio Turnover Rate 174% 961%(h) 1,713%(h) 5%(e) (a) From August 25, 2000, inception of Class, to August 31, 2000. (b) The per share information was computed based on average shares for the years ended August 31, 2003, 2002 and 2001. (c) Net Investment Income aggregated less than $0.01 on a per share basis for the period ended August 31, 2000. (d) The applicable sales charge is not included in the Total Return calculation. (e) Based on operations for the period shown and, accordingly, is not representative of a full year. (f) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian fees). (g) Annualized. (h) Portfolio Turnover is greater than most funds due to the investment style of the Fund. FINANCIAL HIGHLIGHTS ADVANTAGE FUND -- CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ (FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD) PERIOD ENDED YEAR ENDED AUGUST 31 AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 2002 2001 2000(a) PER SHARE DATA Net Asset Value -- Beginning of Period $ 5.08 $ 7.64 $ 10.24 $ 10.00 ==================================================================================================================================== INCOME FROM INVESTMENT OPERATIONS(b) Net Investment Income (Loss)(c) (0.10) (0.12) (0.03) 0.00 Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.56 (2.44) (2.09) 0.24 ==================================================================================================================================== TOTAL FROM INVESTMENT OPERATIONS 0.46 (2.56) (2.12) 0.24 ==================================================================================================================================== Less Dividends and Distributions 0.00 0.00 0.48 0.00 Tax Return of Capital 0.03 0.00 0.00 0.00 ==================================================================================================================================== TOTAL DISTRIBUTIONS 0.03 0.00 0.48 0.00 ==================================================================================================================================== Net Asset Value -- End of Period $ 5.51 $ 5.08 $ 7.64 $ 10.24 ==================================================================================================================================== TOTAL RETURN(d) 9.24% (33.51%) (21.83%) 2.40%(e) RATIOS Net Assets-- End of Period ($000 Omitted) $ 5,883 $ 7,762 $ 19,292 $ 10,878 Ratio of Expenses to Average Net Assets (including dividends on securities sold short)(f) 3.41% 2.88% 3.45% 2.56%(g) Ratio of Expenses to Average Net Assets (excluding dividends on securities sold short)(f) 3.36% 2.73% 3.31% 2.56%(g) Ratio of Net Investment Income (Loss) to Average Net Assets (2.13%) (1.75%) (1.23%) 2.53%(g) Portfolio Turnover Rate 174% 961%(h) 1,713%(h) 5%(e) (a) From August 25, 2000, inception of Class, to August 31, 2000. (b) The per share information was computed based on average shares for the years ended August 31, 2003 and 2002. (c) Net Investment Income aggregated less than $0.01 on a per share basis for the period ended August 31, 2000. (d) The applicable CDSC is not included in the Total Return calculation. (e) Based on operations for the period shown and, accordingly, is not representative of a full year. (f) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian fees). (g) Annualized. (h) Portfolio Turnover is greater than most funds due to the investment style of the Fund. FINANCIAL HIGHLIGHTS ADVANTAGE FUND-- CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ (FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD) PERIOD ENDED YEAR ENDED AUGUST 31 AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 2002 2001 2000(a) PER SHARE DATA Net Asset Value -- Beginning of Period $ 5.06 $ 7.63 $ 10.24 $ 10.00 ==================================================================================================================================== INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)(b) (0.11) (0.09) (0.05) 0.00 Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.55 (2.48) (2.08) 0.24 ==================================================================================================================================== TOTAL FROM INVESTMENT OPERATIONS 0.44 (2.57) (2.13) 0.24 ==================================================================================================================================== Less Dividends and Distributions 0.00 0.00 0.48 0.00 Tax Return of Capital 0.03 0.00 0.00 0.00 ==================================================================================================================================== TOTAL DISTRIBUTIONS 0.03 0.00 0.48 0.00 ==================================================================================================================================== Net Asset Value -- End of Period $ 5.47 $ 5.06 $ 7.63 $ 10.24 ==================================================================================================================================== TOTAL RETURN(c) 8.81% (33.68%) (21.94%) 2.40%(d) RATIOS Net Assets-- End of Period ($000 Omitted) $ 2,719 $ 4,622 $ 5,523 $ 8,482 Ratio of Expenses to Average Net Assets (including dividends on securities sold short)(e) 3.75% 3.02% 3.61% 2.57%(f) Ratio of Expenses to Average Net Assets (excluding dividends on securities sold short)(e) 3.71% 2.86% 3.47% 2.57%(f) Ratio of Net Investment Income (Loss) to Average Net Assets (2.48%) (1.90%) (1.39%) 2.53%(f) Portfolio Turnover Rate 174% 961%(g) 1,713%(g) 5%(d) (a) From August 25, 2000, inception of Class, to August 31, 2000. (b) Net Investment Income aggregated less than $0.01 on a per share basis for the period ended August 31, 2000. (c) The applicable CDSC is 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) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian fees). (f) Annualized (g) Portfolio Turnover is greater than most funds due to the investment style of the Fund. FINANCIAL HIGHLIGHTS ADVANTAGE GLOBAL HEALTH SCIENCES FUND -- CLASS A - ------------------------------------------------------------------------------------------------------------------------------------ (FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD) PERIOD ENDED YEAR ENDED AUGUST 31 AUGUST 31 YEAR ENDED OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 2002 2001(a) 2000 1999 1998 PER SHARE DATA Net Asset Value -- Beginning of Period $ 11.84 $ 14.57 $ 24.25 $ 17.96 $ 21.08 $ 21.25 ==================================================================================================================================== INCOME FROM INVESTMENT OPERATIONS(b) Net Investment Loss(c) (0.00) (0.00) (0.12) (0.13) (0.02)(d) (0.00) Net Gains or (Losses) on Securities (Both Realized and Unrealized) 1.05 (2.77) (6.19) 8.83 0.99(d) 3.76 ==================================================================================================================================== TOTAL FROM INVESTMENT OPERATIONS 1.05 (2.77) (6.31) 8.70 0.97 3.76 ==================================================================================================================================== LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 3.44 2.41 4.09 3.93 ==================================================================================================================================== REDEMPTION FEES -- 0.04 0.07 -- -- -- ==================================================================================================================================== Net Asset Value -- End of Period $ 12.89 $ 11.84 $ 14.57 $ 24.25 $ 17.96 $ 21.08 ==================================================================================================================================== TOTAL RETURN -- NAV 8.87%(e) (18.74%)(e) (28.88%)(e)(f) 52.72% 4.90% 20.74% TOTAL RETURN -- SHARE PRICE -- -- -- 40.75%(g) 4.74%(g) 40.29%(g) RATIOS Net Assets -- End of Period ($000 Omitted) $230,955 $275,037 $478,876 $938,494 $678,030 $586,263 Ratio of Expenses to Average Net Assets (including dividends on securities sold short)(h)(i) 1.67% 2.35% 1.60%(k) 1.16% 1.20% 1.21% Ratio of Expenses to Average Net Assets (excluding dividends on securities sold short)(h)(j) 1.65% 2.33% 1.55%(k) -- -- -- Ratio of Net Investment Loss to Average Net Assets(i) (0.68%) (1.52%) (0.79%)(k) (0.62%) (0.13%) (0.17%) Portfolio Turnover Rate 125% 127% 183%(f) 196% 129% 87% (a) From November 1, 2000 to August 31, 2001. (b) The per share information was computed based on average shares for the period ended August 31, 2001 and the years ended October 31, 2000 and 1999. (c) Net Investment Loss aggregated less than $0.01 on a per share basis for the years ended August 31, 2003 and 2002 and the year ended October 31, 1998. (d) Per share data includes an additional 7,601,529 shares attributed to the Rights Offering at June 21, 1999. (e) The applicable sales charge is not included in the Total Return calculation. (f) Based on operations for the period shown and, accordingly, is not representative of a full year. (g) Total investment return is calculated assuming a purchase of common stock at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, were assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan (prior to Fund's reorganization on May 16, 2001). Total investment return does not reflect sales charges or brokerage commissions. (h) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Advisor, if applicable, which is before any expense offset arrangements (which may include custodian fees). (i) Various expenses of the Class were voluntarily absorbed by IFG for the year ended August 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets (including dividends on securities sold short) would have been 1.74% and ratio of net investment loss to average net assets (including dividends on securities sold short) would have been (0.75%). (j) Various expenses of the Class were voluntarily absorbed by IFG for the year ended August 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets (excluding dividends on securities sold short) would have been 1.72%. (k) Annualized. FINANCIAL HIGHLIGHTS ADVANTAGE GLOBAL HEALTH SCIENCES FUND -- CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ (FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD) PERIOD ENDED YEAR ENDED AUGUST 31 AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 2002 2001(a) PER SHARE DATA Net Asset Value -- Beginning of Period $ 11.77 $ 14.68 $ 14.35 ==================================================================================================================================== INCOME FROM INVESTMENT OPERATIONS(b) Net Investment Loss (0.22) (0.11) (0.05) Net Gains or (Losses) on Securities (Both Realized and Unrealized) 1.06 (2.80) 0.38 ==================================================================================================================================== TOTAL FROM INVESTMENT OPERATIONS 0.84 (2.91) 0.33 ==================================================================================================================================== Net Asset Value -- End of Period $ 12.61 $ 11.77 $ 14.68 ==================================================================================================================================== TOTAL RETURN(c) 7.14% (19.82%) 2.30%(d) RATIOS Net Assets-- End of Period ($000 Omitted) $ 761 $ 882 $ 337 Ratio of Expenses to Average Net Assets (including dividends on securities sold short)(e)(f) 3.27% 3.44% 4.14%(h) Ratio of Expenses to Average Net Assets (excluding dividends on securities sold short)(e)(g) 3.25% 3.43% 3.74%(h) Ratio of Net Investment Loss to Average Net Assets(f) (2.27%) (2.54%) (2.68%)(h) Portfolio Turnover Rate 125% 127% 183%(i) (a) From May 16, 2001, inception of Class, to August 31, 2001. (b) The per share information was computed based on average shares for the period ended August 31, 2001. (c) The applicable CDSC is 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Advisor, if applicable, which is before any expense offset arrangements (which may include custodian fees). (f) Various expenses of the Class were voluntarily absorbed by IFG for the year ended August 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets (including dividends on securities sold short) would have been 3.33% and ratio of net investment loss to average net assets (including dividends on securities sold short) would have been (2.33%). (g) Various expenses of the Class were voluntarily absorbed by IFG for the year ended August 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets (excluding dividends on securities sold short) would have been 3.31%. (h) Annualized. (i) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 2000 to August 31, 2001. FINANCIAL HIGHLIGHTS ADVANTAGE GLOBAL HEALTH SCIENCES FUND -- CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ (FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD) PERIOD ENDED YEAR ENDED AUGUST 31 AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 2002 2001(a) PER SHARE DATA Net Asset Value -- Beginning of Period $ 11.57 $ 14.45 $ 14.35 ==================================================================================================================================== INCOME FROM INVESTMENT OPERATIONS(b) Net Investment Loss (0.46) (0.13) (0.04) Net Gains or (Losses) on Securities (Both Realized and Unrealized) 1.16 (2.75) 0.14 ==================================================================================================================================== TOTAL FROM INVESTMENT OPERATIONS 0.70 (2.88) 0.10 ==================================================================================================================================== Net Asset Value -- End of Period $ 12.27 $ 11.57 $ 14.45 ==================================================================================================================================== TOTAL RETURN(c) 6.14% (20.00%) 0.70%(d) RATIOS Net Assets -- End of Period ($000 Omitted) $ 316 $ 501 $ 312 Ratio of Expenses to Average Net Assets (including dividends on securities sold short)(e)(f) 4.02% 3.54% 4.51%(h) Ratio of Expenses to Average Net Assets (excluding dividends on securities sold short)(e)(g) 4.00% 3.52% 3.93%(h) Ratio of Net Investment Loss to Average Net Assets(f) (3.09%) (2.63%) (2.86%)(h) Portfolio Turnover Rate 125% 127% 183%(i) (a) From May 16, 2001, inception of Class, to August 31, 2001. (b) The per share information was computed based on average shares for the period ended August 31, 2001. (c) The applicable CDSC is 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) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Advisor, if applicable, which is before any expense offset arrangements (which may include custodian fees). (f) Various expenses of the Class were voluntarily absorbed by IFG for the year ended August 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets (including dividends on securities sold short) would have been 4.07% and ratio of net investment loss to average net assets (including dividends on securities sold short) would have been (3.14%). (g) Various expenses of the Class were voluntarily absorbed by IFG for the year ended August 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets (excluding dividends on securities sold short) would have been 4.05%. (h) Annualized. (i) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 2000 to August 31, 2001. OTHER INFORMATION UNAUDITED The table below provides information about each of the Independent and Interested Directors. Their affiliations represent their principal occupations. NUMBER OF FUNDS IN POSITION(S) HELD WITH FUND COMPANY, TERM OF COMPLEX OTHER OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT DIRECTORS Bob R. Baker Vice Chairman of Consultant (2000-present). 47 37 Castle Pines Dr. N. the Board Formerly, President and Chief Castle Rock, Colorado (Since 2003) Executive Officer (1988-2000) of AMC Cancer Research Center, Age: 67 Denver, Colorado. Until Mid-December 1988, Vice Chairman of the Board of First Columbia Financial Corporation, Englewood, Colorado; formerly, Chairman of the Board and Chief Executive Officer of First Columbia Financial Corporation. Sueann Ambron, Ph.D. Director Dean of the Business School, 47 University of Colorado (Since 2003) College of Business, at Denver University of Colorado of 1250 14th Street Denver (2000-present). Denver, Colorado Formerly, President and Chief Executive Officer of Avulet, Age: 58 Inc., Sunnyvale, California (1998-1999); and formerly Vice President and General Manager, Multimedia Services Division, Motorola, Inc., Schaumburg, Illinois (1996-1998). Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman 47 34 Seawatch Drive Emeritus and Chairman and CFO Savannah, Georgia of the Roundtable of the Department of Finance of Age: 73 Georgia State University; and President, Andrews Financial Associates, Inc. (consulting firm). Formerly, member of the faculties of the Harvard Business School; and the Sloan School of Management of MIT. Lawrence H. Budner Director Trust Consultant. Formerly, 47 7608 Glen Albens Circle Senior Vice President and Dallas, Texas Senior Trust Officer of InterFirst Bank, Dallas, Age: 73 Texas. OTHER INFORMATION UNAUDITED NUMBER OF FUNDS IN POSITION(S) HELD WITH FUND COMPANY, TERM OF COMPLEX OTHER OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR - ------------------------------------------------------------------------------------------------------------------------------------ James T. Bunch Director Co-President and Founder of 47 3600 Republic Plaza (since 2000) Green, Manning & Bunch, Ltd., 370 Seventeenth Street Denver, Colorado Denver, Colorado (1988-present); (investment banking firm); Director, Age: 60 Policy Studies, Inc. and Van Gilder Insurance Corporation. Formerly, General Counsel and Director of Boettcher & Company, Denver, Colorado; and formerly, Chairman and Managing Partner of Davis, Graham & Stubbs, Denver, Colorado. Gerald J. Lewis Director Chairman of Lawsuit Resolution 47 Director of General 701 "B" Street (since 2000) Services, San Diego, Chemical Group, Inc., Suite 2100 California (1987-present). Hampdon, New Hampshire San Diego, California Formerly, Associate Justice of (1996- present). Director the California Court of of Wheelabrator Age: 69 Appeals; and Of Counsel, Technologies, Inc., Latham & Watkins, San Diego, Fisher Scientific, Inc., California (1987-1997). Henley Manufacturing, Inc., and California Coastal Properties, Inc. John W. McIntyre Director Retired. Trustee of Gables 47 7 Piedmont Center Residential Trust. Trustee and Suite 100 Chairman of the J.M. Tull Atlanta, Georgia Charitable Foundation; Director of Kaiser Foundation Age: 72 Health Plans of Georgia, Inc. Formerly, Vice Chairman of the Board of Directors of The Citizens and Southern Corporation and Chairman of the Board and Chief Executive Officer of The Citizens and Southern Georgia Corporation and The Citizens and Southern National Bank. Formerly, Trustee of INVESCO Global Health Sciences Fund and Trustee of Employee's Retirement System of Georgia, Emory University. Larry Soll, Ph. D. Director Retired. Formerly, Chairman of 47 Director of Synergen 2358 Sunshine Canyon Dr. (since 1997) the Board (1987-1994), Chief since incorporation in Boulder, Colorado Executive Officer (1982-1989 1982; Director of Isis and 1993-1994) and President Pharmaceuticals, Inc. Age: 61 (1982-1989) of Synergen Inc.; and formerly, Trustee of INVESCO Global Health Sciences Fund. OTHER INFORMATION UNAUDITED NUMBER OF FUNDS IN POSITION(S) HELD WITH FUND COMPANY, TERM OF COMPLEX OTHER OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED DIRECTORS AND OFFICERS These directors are "interested persons" of IFG as defined in the Act, and they are interested persons by virtue of the fact that he/she is an officer or director of IFG, IDI or an affiliate of IFG. Mark H. Williamson Chairman of the President and Chief Executive 47 4350 South Monaco Street Board (since Officer A I M Investment Denver, Colorado 1999). Formerly, Management and Chief Executive President (1998- Officer of the A I M Division Age: 52 2002); and Chief of AMVESCAP PLC Executive (2003-present). Formerly, Officer (1998- Chief Executive Officer, 2002). Managed Products Division, AMVESCAP PLC (2001-2002). Formerly, Chairman of the Board (1998-2002), President (1998-2002), and Chief Executive Officer (1998-2002) of INVESCO Funds Group, Inc. and of INVESCO Distributors, Inc. Formerly, Chief Operating Officer and Chairman of the Board of INVESCO Global Health Sciences Fund; formerly, Chairman and Chief Executive Officer of NationsBanc Advisors, Inc.; and formerly, Chairman of NationsBanc Investments, Inc. Raymond R. Cunningham President (2001- President (2001-present) and 47 Director of INVESCO Funds 4350 South Monaco Street present), Chief Chief Executive Officer Group, Inc. and Chairman Denver, Colorado Executive Officer (2003-present) of INVESCO of the Board of INVESCO (2003-present) and Funds Group, Inc.; Chairman of Distributors, Inc. Age: 52 Director (2001- the Board (2003- present), present). President (2003-present), and Formerly, Vice Chief Executive Officer President (2001- (2003-present) of INVESCO 2002). Distributors, Inc. Formerly, Chief Operating Officer (2001-2003) and Senior Vice President (1999-2002) of INVESCO Funds Group, Inc. and INVESCO Distributors, Inc.; and Formerly, Senior Vice President of GT Global - North America (1992-1998). Richard W. Healey Director Senior Vice President of 39 Director of INVESCO Funds 4350 South Monaco Street (since 2000) INVESCO Funds Group, Inc.; Group, Inc. and INVESCO Denver, Colorado Senior Vice President of Distributors, Inc. INVESCO Distributors, Inc. Age: 48 Formerly, Senior Vice President of GT Global - North America (1996-1998) and The Boston Company (1993-1996). OTHER INFORMATION UNAUDITED NUMBER OF FUNDS IN POSITION(S) HELD WITH FUND COMPANY, TERM OF COMPLEX OTHER OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR - ------------------------------------------------------------------------------------------------------------------------------------ Glen A. Payne Secretary Senior Vice President, General 4350 South Monaco Street Counsel and Secretary of Denver, Colorado INVESCO Funds Group, Inc.; Senior Vice President, Age: 55 Secretary and General Counsel of INVESCO Distributors, Inc. Formerly, Secretary of INVESCO Global Health Sciences Fund; General Counsel of INVESCO Trust Company (1989-1998); and employee of a U.S. regulatory agency, Washington, D.C. (1973-1989). Ronald L. Grooms Chief Accounting Senior Vice President and Director of INVESCO Funds 4350 South Monaco Street Officer, Chief Treasurer of INVESCO Funds Group, Inc. and INVESCO Denver, Colorado Financial Officer Group, Inc.; and Senior Vice Distributors, Inc. and Treasurer President and Treasurer of Age: 56 INVESCO Distributors, Inc. Formerly, Treasurer and Principal Financial and Accounting Officer of INVESCO Global Health Sciences Fund; and Senior Vice President and Treasurer of INVESCO Trust Company (1988-1998). William J. Galvin, Jr. Assistant Senior Vice President and Director of INVESCO Funds 4350 South Monaco Street Secretary Assistant Secretary of INVESCO Group, Inc. and INVESCO Denver, Colorado Funds Group, Inc.; and Senior Distributors, Inc. Vice President and Assistant Age: 47 Secretary of INVESCO Distributors, Inc. Formerly, Trust Officer of INVESCO Trust Company (1995-1998). Pamela J. Piro Assistant Vice President and Assistant 4350 South Monaco Street Treasurer Treasurer of INVESCO Funds Denver, Colorado Group, Inc.; and Assistant Treasurer of INVESCO Age: 43 Distributors, Inc. Formerly, Assistant Vice President (1996-1997). Tane T. Tyler Assistant Vice President and Assistant 4350 South Monaco Street Secretary General Counsel of INVESCO Denver, Colorado (since 2002) Funds Group, Inc. Age: 38 * Except as otherwise indicated, each individual has held the position(s) shown for at least the last five years. The Statement of Additional Information ("SAI") includes additional information about Fund directors and is available, without charge, upon request. To obtain a free copy of the current SAI, call 1-800-525-8085. For dividends paid during the fiscal year ended August 31, 2003, the Funds designate qualified dividend income to the maximum extent allowable. [INVESCO ICON] INVESCO (R) 1-800-525-8085 1-800-959-4246 Automated AIM Investor Line: 1-800-246-5463 AIMinvestments.com Effective 7/1/03 A I M Distributors, Inc.,(SM) became the distributor of the retail INVESCO funds 11 Greenway Plaza, Suite 100, Houston, Texas 77046 This information must be preceded or accompanied by a current prospectus. ACOU 900526 9/03 I-CSE-AR-1 ITEM 2. CODE OF ETHICS As of the end of the period covered by the report, Registrant had adopted a code of ethics (the "Code") that applied to the Registrant's principal executive officer ("PEO") and principal financial officer ("PFO"). There were no amendments to the Code during the period covered by the report. During the period covered by this report, Registrant did not grant any waiver, and does not believe it granted an implicit waiver, from a provision of the Code that is applicable to the PEO and PFO. However, it should be noted that Raymond Cunningham was the PEO of Registrant on August 31, 2003. Since the end of the period covered by this report, the Securities and Exchange Commission, the New York State Attorney General's Office and the Colorado Attorney General's Office filed civil actions against INVESCO Funds Group, Inc. and Raymond Cunningham alleging violations of various federal and state laws due to selectively permitting market timing. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The Audit Committee of the Boards of Directors of the INVESCO Mutual Funds is composed of four of the Fund's directors who are not affiliated with the Funds' investment adviser. All members are independent. The Board has determined that each of the Committee members is "financially literate" and that at least two members have "accounting or related financial management expertise" as used in the New York Stock Exchange definitions of the terms. Under the recently enacted Sarbanes-Oxley Act, if the Boards of Directors have not determined that an "audit committee financial expert," a new term defined by the SEC and based on criteria contained in the Act, is serving on the Audit Committee, it must disclose this fact and explain why it does not have such an expert. The Boards of Directors have determined that none of the members of the Audit Committee meet the technical requirements of the definition. Moreover, the Boards believe that for the following reasons it is not necessary for registered investment companies such as the Funds, with an audit committee that meets the New York Stock Exchange requirements of financial literacy, to have a "financial expert" as a member of the committee. 1. The financial statements of and accounting principles applying to registered investment companies such as the Funds are relatively simple, straightforward and transparent compared to operating companies. The significant accounting issues are valuation of securities and other assets (regulated under the Investment Company Act of 1940 and computed daily), accrual of expenses, allocation of joint expenses shared with other entities such as insurance premiums and disclosures of all related party transactions. Equally important is a knowledge of the tax laws applying to registered investment companies. None of the accounting issues involving corporate America that have received recent publicity such as sophisticated derivative transactions and special purpose entities are present in financial reporting for registered investment companies. 2. During the years that the Funds has been filing financial reports under the 1940 Act since their inception, there has never been a requirement for a financial report or statement to be restated. 3. The current members of the Audit Committee have the experience of 23.5 years serving on this Audit Committee and in the Boards' judgement, through this experience and experience with other public corporation's financial affairs, they have an understanding of the relevant generally accepted accounting principles governing the Funds' financial statements, tax laws applying to the Funds, the Funds internal accounting controls and audit committee functions necessary to satisfy the objectives of the Sarbanes-Oxley Act with respect to the financial statements, auditing process and internal controls of the Funds. 4. The Audit Committee has the capability of employing a consultant who satisfies the technical definition of a "financial expert" and will do so from time to time if circumstances warrant." ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES Not applicable to this filing. ITEM 5. [RESERVED] ITEM 6. [RESERVED] ITEM 7. NOT APPLICABLE ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES (a) As of June 18, 2004, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO"), to assess the effectiveness of the Registrant's disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act"), as amended. Based on that evaluation, the Registrant's officers, including the PEO and PFO, concluded that, as of June 18, 2004, the Registrant's disclosure controls and procedures were reasonably designed so as to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR/A is recorded, processed summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. (b) There have been no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by the report on Form N-CSR/A that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 10. EXHIBITS 10(a)(1) Code of Ethics. 10(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. 10(a)(3) Not applicable. 10(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: AIM Counselor Series Trust (Successor to: INVESCO Counselor Series Funds, Inc.) By: /s/ ROBERT H. GRAHAM ------------------------------------------- Robert H. Graham Principal Executive Officer Date: August 3, 2004 Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investments Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ ROBERT H. GRAHAM ------------------------------------------- Robert H. Graham Principal Executive Officer Date: August 3, 2004 By: /s/ SIDNEY M. DILGREN ------------------------------------------- Sidney M. Dilgren Principal Financial Officer Date: August 3, 2004 EXHIBIT INDEX 10(a)(1) Code of Ethics. 10(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. 10(a)(3) Not applicable. 10(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.