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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number 811-09913
AIM Counselor Series Trust (Invesco Counselor Series Trust)*
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 2500 Houston, Texas 77046
Philip A. Taylor 11 Greenway Plaza, Suite 2500 Houston, Texas 77046
Registrant’s telephone number, including area code: (713) 626-1919
Date of fiscal year end: 8/31
Date of reporting period: 8/31/10
* | Funds included are: Invesco California Tax-Free Income Fund, Invesco Core Plus Bond Fund, Invesco Dividend Growth Securities Fund, Invesco Equally-Weighted S&P 500 Fund, Invesco Floating Rate Fund, Invesco Fundamental Value Fund, Invesco Large Cap Relative Value Fund, Invesco Multi-Sector Fund, Invesco New York Tax-Free Income Fund, Invesco S&P 500 Index Fund, Invesco Select Real Estate Income Fund, Invesco Structured Core Fund, Invesco Structured Growth Fund, Invesco Structured Value Fund, Invesco Van Kampen American Franchise Fund, Invesco Van Kampen Core Equity Fund, Invesco Van Kampen Equity and Income Fund, Invesco Van Kampen Equity Premium Income Fund, Invesco Van Kampen Growth and Income Fund, Invesco Van Kampen Pennsylvania Tax Free Income Fund and Invesco Van Kampen Small Cap Growth Fund. |
Table of Contents
Item 1. Reports to Stockholders.
Table of Contents
Invesco Core Plus Bond Fund
Annual Report to Shareholders August 31, 2010
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
16 | Financial Statements | |
18 | Notes to Financial Statements | |
26 | Financial Highlights | |
27 | Auditor’s Report | |
28 | Fund Expenses | |
31 | Tax Information | |
31 | Approval of Investment Advisory and Sub-Advisory Agreements | |
T-1 | Trustees and Officers |
Table of Contents
Letter to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Core Plus Bond Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Core Plus Bond Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the reporting period ended August 31, 2010, Invesco Core Plus Bond Fund, Class A shares at net asset value (NAV), outperformed the Fund’s broad market and style-specific index, the Barclays Capital U.S. Aggregate Index, due mainly to overweight exposure to non-government bonds relative to the index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 10.26 | % | ||
Class B Shares | 9.34 | |||
Class C Shares | 9.44 | |||
Class R Shares | 9.88 | |||
Class Y Shares | 10.43 | |||
Institutional Class Shares | 10.43 | |||
Barclays Capital U.S. Aggregate Index▼ (Broad Market/Style-Specific Index) | 9.18 | |||
Lipper Intermediate Investment Grade Debt Funds Index▼ (Peer Group Index) | 12.70 | |||
▼ | Lipper Inc. |
How we invest
We invest primarily in a mix of U.S. dollar denominated investment grade fixed income securities, particularly U.S. government, corporate and mortgage securities. Under normal market conditions, the Fund seeks to maintain an average weighted maturity range between five and 10 years. The Fund may invest up to 20% of its total assets in securities rated below investment grade at the time of investment. The Fund may invest a portion or all of its total assets in securities issued by foreign governments or corporations; provided, however, that the Fund may not invest more than 30% of its total assets in non-U.S. dollar denominated securities. The Fund may purchase and sell options, futures contracts, options on futures contracts, forward contracts, swaps (including currency, interest rate, credit default, total return and index swaps and swap options) and structured products, which are derivative instruments, for various portfolio management purposes and to manage risks.
We believe dynamic and complex fixed income markets may create opportunities
for investors that are best captured by specialist decision makers interconnected as a global team. We use this philosophy in an effort to generate a high level of current income consistent with concern for safety of principal.
Our security selection is supported by a team of specialists. Team members conduct top-down macroeconomic as well as bottom-up analysis on individual securities. Recommendations are communicated to portfolio managers through proprietary technology that allows all investment professionals to communicate in a timely manner.
Portfolio construction begins with a well-defined Fund design that establishes the target investment vehicles for generating the desired “alpha” (the extra return above a specific benchmark) as well as the risk parameters for the Fund. Investment vehicles are evaluated for liquidity and risk versus relative value.
Sell decisions are based on:
n | A conscious decision to alter the Fund’s macro risk exposure (for example, duration, yield curve positioning or sector exposure). |
n | The need to limit or reduce exposure to a particular sector or issuer. | |
n | Degradation of an issuer’s credit quality. | |
n | Realignment of a valuation target. | |
n | Presentation of a better relative value opportunity. |
Market conditions and your Fund
Market conditions during the 12-month period covered in this report were influenced by two broad themes: private sector recovery and concerns over sovereign creditworthiness. In the U.S. and most of the developed world, a gradual and somewhat lackluster recovery continued, with central banks keeping interest rates at extremely low levels and with few of them withdrawing their quantitative easing measures. This helped private sector companies improve their balance sheets and earnings following the global financial crisis that began to dissipate in 2009. Recently, however, investor skepticism of global governments’ abilities to retire huge amounts of debt without affecting economic growth rates caused sovereign debt distress (especially for Greece and other southern eurozone countries) and became a focal point of investor concern in the first half of 2010.
In the U.S., economic recovery was present, although uneven, as stubbornly high unemployment and weakness in output continued to weigh on the economy. Real gross domestic product (GDP), the broadest measure of overall U.S. economic activity, increased at an estimated annual rate of 1.7% in the second quarter of 2010, following 3.7% growth in the first quarter, and 1.6% and 5.0% annual rates of growth during the third and forth quarters of 2009, respectively.1 The U.S. Federal Reserve (the Fed) maintained a very accommodative monetary policy throughout the period, with the federal funds target rate unchanged in its range of zero to 0.25%.2 In the latest Federal Open Market Committee meeting minutes, the board of
Portfolio Composition
By security type
U.S. Dollar Denominated Bonds & Notes | 35.3 | % | ||
U.S. Government Sponsored | ||||
Mortgage-Backed Securities | 29.1 | |||
U.S. Treasury Securities | 23.9 | |||
Asset-Backed Securities | 15.0 | |||
Municipal Obligations | 0.8 | |||
Money Market Funds | ||||
Plus Other Assets Less Liabilities | -4.1 |
Top 10 Fixed Income Issuers*
1. | Federal National Mortgage Association | 15.2 | % | |||||||||||||
2. | Federal Home Loan Mortgage Corp. | 14.0 | ||||||||||||||
3. | U.S. Treasury Notes | 12.4 | ||||||||||||||
4. | U.S. Treasury Bills | 8.8 | ||||||||||||||
5. | U.S. Treasury Bonds | 2.7 | ||||||||||||||
6. | Bear Stearns | |||||||||||||||
Commercial Mortgage Securities | 2.2 | |||||||||||||||
7. | Morgan Stanley Capital I | 1.6 | ||||||||||||||
8. | GS Morgan Securities Corp. II | 1.4 | ||||||||||||||
9. | Freddie Mac REMICS | 1.3 | ||||||||||||||
10. | RBSCF Trust | 1.1 |
Total Net Assets | $9.4 million | |
Total Number of Holdings* | 235 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Core Plus Bond Fund |
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governors indicated a belief “that the pace of recovery in output and employment has slowed in recent months” and “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”2 Consequently, the Fed decided to continue to support the U.S. economic recovery in a context of price stability and low interest rates by reinvesting the principal payments from agency debt and agency mortgage backed securities (MBS) that it holds into longer-term U.S. Treasuries.2
The broad U.S. bond market, as measured by the Barclays Capital U.S. Aggregate Index, generated positive total return for the trailing 12 months3, as falling interest rates across maturities combined with tighter credit spreads (the difference between the yields of U.S. Treasuries and other types of fixed income securities that carry credit risk) reflected the rise in the prices of fixed income assets. During the second quarter of 2010, sovereign risks in Europe, most notably in Greece, caused investors to scale back their risk profile and embrace the safe haven of U.S. government and agency securities, though the impact was not enough to erase gains in non-government bonds over the rest of the Fund’s fiscal year.
The Fund at NAV generated positive returns and outperformed its benchmark for the period. Sector and security selection both contributed to the positive returns. Sustained overweight positioning in investment grade corporate credit, commercial mortgage backed securities (CMBS) and limited out-of-index exposure to high yield corporate bond sectors, benefited the Fund as credit spreads narrowed throughout the Fund’s fiscal year. The Fund’s underweight exposure to government and government related bond sectors relative to its style index were also advantageous as those sectors’ returns, although positive on an absolute basis, underperformed versus non-government bonds.
Security selection’s contribution to portfolio performance was significant and broad-based for the period, on both an absolute and relative basis. The Fund’s holdings within the consumer cyclical, telecommunications/media/technology and transportation sub-sectors produced notable outperformance versus their benchmark counterparts. The performance of individual securities within CMBS, agency MBS, credit card asset backed securities and the financials sub-sectors detracted from Fund performance.
The Fund uses active duration and yield curve positioning for risk management and for generating alpha versus its style-specific benchmark. We may use derivative instruments such as U.S. Treasury futures
and interest rate swaps, to help manage duration and yield curve exposure. Duration measures a portfolio’s price sensitivity to interest rate changes, with a shorter duration portfolio tending to be less sensitive to these changes. The contribution to performance from duration positioning was mixed over the period, but overall it had a small negative effect. The Fund maintained a shorter-than-benchmark duration positioning relative to the style-specific index as interest rates trended lower over most of the period.
The contribution to performance from the Fund’s yield curve positioning (emphasizing points on the yield curve with the greatest return potential) was also mixed for the period, but overall was another small detractor from performance relative to the benchmark. On average, the portfolio favored yield curve positioning that emphasized stability in intermediate maturities and did not fully participate in upside performance of the index. Rates fell across the yield curve, benefiting the index’s higher percentage of assets in intermediate and longer maturity securities.
During the period, the Fund benefited from incremental income earned by engaging in dollar (mortgage) roll activity, a type of repurchase transaction in the highly liquid TBA market for Agency MBS. A dollar roll involves the Fund selling a mortgage-backed security to a financial institution, with an agreement to repurchase a substantially similar security at an agreed upon price and date. Cash proceeds from the sale may be invested in short-term instruments and the income from these investments, together with any additional fee income received on the sale, generate income for the Fund.
Thank you for investing in Invesco Core Plus Bond Fund and for sharing our long-term investment horizon.
1 Bureau of Economic Analysis
2 U.S. Federal Reserve
3 Barclays Capital
2 U.S. Federal Reserve
3 Barclays Capital
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Cynthia Brien
Chartered Financial Analyst, portfolio manager, is manager of Invesco Core Plus Bond Fund. She joined Invesco in 1996. Ms. Brien earned a B.B.A. from The University of Texas at Austin.
Charles Burge
Portfolio manager, is manager of Invesco Core Plus Bond Fund. He joined Invesco in 2002. Mr. Burge earned a B.S. in economics from Texas A&M University and an M.B.A. in finance and accounting from Rice University.
Claudia Calich
Portfolio manager, is manager of Invesco Core Plus Bond Fund. She joined Invesco in 2004. Ms. Calich earned a B.A. in economics from Susquehanna University and an M.A. in international economics from the International University of Japan in Nilgata.
John Craddock
Chartered Financial Analyst, portfolio manager, is manager of Invesco Core Plus Bond Fund. He joined Invesco in 1999. Mr. Craddock earned a B.S. in mechanical engineering from Clemson University and an M.B.A. from Georgia Tech’s Dupree School of Management with a concentration finance.
Peter Ehret
Chartered Financial Analyst, portfolio manager, is manager of Invesco Core Plus Bond Fund. Mr. Ehret joined Invesco in 2001. He graduated cum laude with a B.S. in economics from the University of Minnesota. He also earned an M.S. in real estate appraisal and investment analysis from the University of Wisconsin-Madison.
5 | Invesco Core Plus Bond Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes Since Inception
Index data from 5/31/09, Fund data from 6/3/09
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index
results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
6 | Invesco Core Plus Bond Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||||
Inception (6/3/09) | 6.98 | % | ||||
1 | Year | 5.05 | ||||
Class B Shares | ||||||
Inception (6/3/09) | 7.21 | % | ||||
1 | Year | 4.34 | ||||
Class C Shares | ||||||
Inception (6/3/09) | 10.44 | % | ||||
1 | Year | 8.44 | ||||
Class R Shares | ||||||
Inception (6/3/09) | 10.91 | % | ||||
1 | Year | 9.88 | ||||
Class Y Shares | ||||||
Inception (6/3/09) | 11.46 | % | ||||
1 | Year | 10.43 | ||||
Institutional Class Shares | ||||||
Inception (6/3/09) | 11.46 | % | ||||
1 | Year | 10.43 |
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||
Inception (6/3/09) | 5.59 | % | ||||
1 | Year | 5.94 | ||||
Class B Shares | ||||||
Inception (6/3/09) | 5.88 | % | ||||
1 | Year | 5.31 | ||||
Class C Shares | ||||||
Inception (6/3/09) | 9.68 | % | ||||
1 | Year | 9.41 | ||||
Class R Shares | ||||||
Inception (6/3/09) | 10.13 | % | ||||
1 | Year | 10.86 | ||||
Class Y Shares | ||||||
Inception (6/3/09) | 10.68 | % | ||||
1 | Year | 11.41 | ||||
Institutional Class Shares | ||||||
Inception (6/3/09) | 10.78 | % | ||||
1 | Year | 11.51 | ||||
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 0.90%, 1.65%, 1.65%, 1.15%, 0.65% and 0.65%, respectively. 1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 2.67%, 3.42%, 3.42%, 2.92%, 2.42% and 2.30%,
respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 4.75% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class R, Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least December 31, 2011. See current prospectus for more information. |
continued from page 8
n | The Lipper Intermediate Investment Grade Debt Funds Index is an unmanaged index considered representative of intermediate investment grade debt funds tracked by Lipper. |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer |
group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally |
accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
7 | Invesco Core Plus Bond Fund |
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Invesco Core Plus Bond Fund’s investment objective is total return.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The Fund may engage in frequent trading of portfolio securities, which may result in added expenses, lower return and increased tax liability. | |
n | Many of the instruments that the Fund expects to hold may be subject to the risk that the other party to a contract will not fulfill its contractual obligations. | |
n | The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. | |
n | The dollar value of the Fund’s foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded. | |
n | The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk — the risk that the other party will not complete the transaction with the Fund. |
n | Securities issued by foreign companies and governments located in developing countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries. | |
n | The Fund’s foreign investments may be affected by changes in the foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. | |
n | Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high-quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time. | |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. | |
n | Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities. | |
n | The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. | |
n | The Fund may hold illiquid securities that it is unable to sell at the preferred time or price and could lose its entire investment in such securities. |
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. | |
n | The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the Fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. | |
n | The Fund is non-diversified and can invest a greater portion of its assets in a single issuer. A change in the value of the issuer could affect the value of the Fund more than if it was a diversified fund. | |
n | Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be reinvested at an interest rate below that on the original bond. | |
n | The Fund may invest in obligations issued by U.S. government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default. |
About indexes used in this report
n | The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market. |
continued on page 7
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | ACPSX | |
Class B Shares | CPBBX | |
Class C Shares | CPCFX | |
Class R Shares | CPBRX | |
Class Y Shares | CPBYX | |
Institutional Class Shares | CPIIX |
8 | Invesco Core Plus Bond Fund |
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Schedule of Investments(a)
August 31, 2010
Principal | ||||||||
Amount | Value | |||||||
Bonds & Notes–35.24% | ||||||||
Advertising–0.05% | ||||||||
Lamar Media Corp., Sr. Sub. Gtd. Notes, 7.88%, 04/15/18(b) | $ | 5,000 | $ | 5,175 | ||||
Aerospace & Defense–0.23% | ||||||||
BE Aerospace, Inc., Sr. Unsec. Notes, 8.50%, 07/01/18 | 10,000 | 10,819 | ||||||
Bombardier Inc. (Canada), Sr. Notes, 7.50%, 03/15/18(b) | 5,000 | 5,331 | ||||||
7.75%, 03/15/20(b) | 5,000 | 5,375 | ||||||
21,525 | ||||||||
Agricultural Products–0.82% | ||||||||
Bunge Limited Finance Corp., Sr. Unsec. Gtd. Notes, 8.50%, 06/15/19 | 10,000 | 12,114 | ||||||
Cargill Inc., Sr. Unsec. Notes, 5.60%, 09/15/12(b) | 60,000 | 65,264 | ||||||
77,378 | ||||||||
Airlines–2.14% | ||||||||
American Airlines Pass Through Trust, Series 2001-2, Class A-1, Sec. Global Pass Through Ctfs., 6.98%, 04/01/11 | 58,853 | 59,515 | ||||||
Series 2001-2, Class A-2, Sec. Global Pass Through Ctfs., 7.86%, 10/01/11 | 50,000 | 51,812 | ||||||
Continental Airlines Inc., Series 2009-1, Class A, Pass Through Ctfs., 9.00%, 07/08/16 | 28,787 | 32,530 | ||||||
Series 2009-1, Class B, Global Pass Through Ctfs., 9.25%, 05/10/17 | 5,000 | 5,266 | ||||||
Delta Air Lines, Inc., Sr. Sec. Notes, 9.50%, 09/15/14(b) | 4,000 | 4,305 | ||||||
Series 2001-1, Class A-2, Sr. Sec. Pass Through Ctfs., 7.11%, 09/18/11 | 30,000 | 31,500 | ||||||
Series 2002-1, Class C, Sec. Pass Through Ctfs., 7.78%, 01/02/12 | 1,205 | 1,217 | ||||||
UAL Corp., Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 9,745 | 10,866 | ||||||
Series 2009-2A, Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 4,759 | 5,258 | ||||||
202,269 | ||||||||
Alternative Carriers–0.11% | ||||||||
Intelsat Intermediate Holding Co. S.A. (Bermuda), Sr. Unsec. Gtd. Global Notes, 9.50%, 02/01/15(c) | 10,000 | 10,400 | ||||||
Aluminum–0.05% | ||||||||
Century Aluminum Co., Sr. Sec. Notes, 8.00%, 05/15/14 | 5,000 | 4,947 | ||||||
Apparel Retail–0.40% | ||||||||
Collective Brands, Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 08/01/13 | 9,000 | 9,113 | ||||||
Limited Brands Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 06/15/19 | 25,000 | 28,312 | ||||||
37,425 | ||||||||
Auto Parts & Equipment–0.05% | ||||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 11/15/15 | 5,000 | 5,213 | ||||||
Automobile Manufacturers–0.17% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 11.00%, 11/01/15(b) | 5,000 | 5,400 | ||||||
Case New Holland Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 09/01/13 | 10,000 | 10,500 | ||||||
15,900 | ||||||||
Automotive Retail–0.23% | ||||||||
Advance Auto Parts Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 20,000 | 21,275 | ||||||
Brewers–0.55% | ||||||||
Anheuser Busch InBev Worldwide Inc., Sr. Unsec. Gtd. Global Notes, 3.00%, 10/15/12 | 50,000 | 51,770 | ||||||
Broadcasting–1.56% | ||||||||
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | 5,000 | 4,956 | ||||||
Belo Corp., Sr. Unsec. Notes, 8.00%, 11/15/16 | 10,000 | 10,637 | ||||||
Clear Channel Worldwide Holdings Inc., Series B, Sr. Unsec. Gtd. Global Notes, 9.25%, 12/15/17 | 5,000 | 5,275 | ||||||
COX Communications Inc., Sr. Unsec. Notes, 6.75%, 03/15/11 | 40,000 | 41,280 | ||||||
9.38%, 01/15/19(b) | 25,000 | 34,382 | ||||||
Discovery Communications LLC, Sr. Unsec. Gtd. Global Notes, 6.35%, 06/01/40 | 40,000 | 45,059 | ||||||
LIN Television Corp., Sr. Unsec. Gtd. Notes, 8.38%, 04/15/18(b) | 5,000 | 5,113 | ||||||
146,702 | ||||||||
Building Products–0.32% | ||||||||
Building Materials Corp. of America, Sr. Gtd. Notes, 7.50%, 03/15/20(b) | 5,000 | 5,012 | ||||||
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Global Notes, 8.00%, 12/01/15 | 5,000 | 4,875 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. First & Second Lien Global Notes, 11.75%, 06/15/13 | 15,000 | 15,525 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, 9.75%, 08/01/14(b) | 5,000 | 5,200 | ||||||
30,612 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Core Plus Bond Fund
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Cable & Satellite–1.13% | ||||||||
British Sky Broadcasting Group PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 9.50%, 11/15/18(b) | $ | 25,000 | $ | 34,336 | ||||
Cablevision Systems Corp., Sr. Unsec. Notes, 8.63%, 09/15/17(b) | 5,000 | 5,450 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co. Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 05/15/16 | 60,000 | 66,450 | ||||||
106,236 | ||||||||
Casinos & Gaming–0.22% | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 7.25%, 02/15/15(b) | 5,000 | 5,069 | ||||||
Pinnacle Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 08/01/17 | 5,000 | 5,268 | ||||||
Wynn Las Vegas Capital LLC/Corp., Sec. First Mortgage Notes, 7.88%, 11/01/17(b) | 10,000 | 10,300 | ||||||
20,637 | ||||||||
Coal & Consumable Fuels–0.11% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Notes, 8.00%, 04/01/17(b) | 5,000 | 5,325 | ||||||
8.25%, 04/01/20(b) | 5,000 | 5,331 | ||||||
10,656 | ||||||||
Communications Equipment–0.57% | ||||||||
Motorola Inc., Sr. Unsec. Global Notes, 8.00%, 11/01/11 | 50,000 | 53,349 | ||||||
Construction, Farm Machinery & Heavy Trucks–0.06% | ||||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 5,000 | 5,238 | ||||||
Consumer Finance–0.21% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/01/31 | 10,000 | 9,925 | ||||||
Sr. Unsec. Gtd. Notes, 8.00%, 03/15/20(b) | 5,000 | 5,162 | ||||||
National Money Market Co. (Canada), Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | 5,000 | 5,225 | ||||||
20,312 | ||||||||
Department Stores–0.72% | ||||||||
Macy’s Retail Holdings Inc., Sr. Unsec. Gtd. Notes, 5.35%, 03/15/12 | 65,000 | 67,600 | ||||||
Diversified Banks–1.46% | ||||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 3.40%, 01/22/15 | 50,000 | 53,282 | ||||||
US Bancorp, Sr. Unsec. Notes, 2.00%, 06/14/13 | 45,000 | 46,128 | ||||||
Wachovia Corp.–Series G, Sr. Unsec. Medium-Term Notes, 5.50%, 05/01/13 | 35,000 | 38,463 | ||||||
137,873 | ||||||||
Diversified Capital Markets–0.06% | ||||||||
Credit Suisse AG (Switzerland), Sub. Global Notes, 5.40%, 01/14/20 | 5,000 | 5,274 | ||||||
Diversified Metals & Mining–0.53% | ||||||||
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Notes, 8.38%, 04/01/17 | 45,000 | 50,048 | ||||||
Diversified Support Services–0.05% | ||||||||
Travelport LLC, Sr. Unsec. Gtd. Global Notes, 9.88%, 09/01/14 | 5,000 | 5,156 | ||||||
Electric Utilities–1.94% | ||||||||
Indiana Michigan Power Co., Sr. Unsec. Notes, 7.00%, 03/15/19 | 25,000 | 30,987 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series D, Sr. Sec. Bonds, 8.16%, 07/15/25 | 5,000 | 3,613 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 30,000 | 34,432 | ||||||
Southern Co., Series A, Sr. Unsec. Notes, 5.30%, 01/15/12 | 60,000 | 63,507 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.10%, 11/30/12 | 25,000 | 27,299 | ||||||
5.00%, 06/30/19 | 20,000 | 23,078 | ||||||
182,916 | ||||||||
Electrical Components & Equipment–0.29% | ||||||||
Belden Inc., Sr. Gtd. Notes, 9.25%, 06/15/19(b) | 25,000 | 27,125 | ||||||
Electronic Manufacturing Services–0.06% | ||||||||
Jabil Circuit, Inc., Sr. Unsec. Notes, 7.75%, 07/15/16 | 5,000 | 5,413 | ||||||
Environmental & Facilities Services–0.05% | ||||||||
Clean Harbors Inc., Sr. Sec. Gtd. Global Notes, 7.63%, 08/15/16 | 5,000 | 5,200 | ||||||
Food Retail–0.11% | ||||||||
Wm. Wrigley Jr. Co., Sr. Sec. Gtd. Floating Rate Notes, 1.91%, 06/28/11(b) | 10,000 | 10,030 | ||||||
Gas Utilities–0.06% | ||||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 5,000 | 5,275 | ||||||
Health Care Equipment–1.17% | ||||||||
Boston Scientific Corp., Sr. Unsec. Notes, 5.45%, 06/15/14 | 40,000 | 41,860 | ||||||
6.00%, 01/15/20 | 15,000 | 15,846 | ||||||
CareFusion Corp., Sr. Unsec. Global Notes, 4.13%, 08/01/12 | 50,000 | 52,420 | ||||||
110,126 | ||||||||
Health Care Facilities–0.17% | ||||||||
Community Health Systems Inc., Sr. Unsec. Gtd. Global Notes, 8.88%, 07/15/15 | 5,000 | 5,206 | ||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 02/15/20 | 10,000 | 10,825 | ||||||
16,031 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Core Plus Bond Fund
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Health Care Services–0.87% | ||||||||
Express Scripts Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 06/15/12 | $ | 50,000 | $ | 53,430 | ||||
6.25%, 06/15/14 | 25,000 | 28,733 | ||||||
82,163 | ||||||||
Hotels, Resorts & Cruise Lines–0.78% | ||||||||
Hyatt Hotels Corp., Sr. Unsec. Notes, 5.75%, 08/15/15(b) | 20,000 | 21,540 | ||||||
Royal Caribbean Cruises Ltd. (Trinidad), Sr. Unsec. Notes, 7.50%, 10/15/27 | 5,000 | 4,494 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Notes, 7.15%, 12/01/19 | 5,000 | 5,338 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 7.38%, 03/01/20 | 40,000 | 41,950 | ||||||
73,322 | ||||||||
Household Products–0.05% | ||||||||
Central Garden and Pet Co., Sr. Gtd. Notes, 8.25%, 03/01/18 | 5,000 | 5,075 | ||||||
Independent Power Producers & Energy Traders–0.32% | ||||||||
NRG Energy, Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/16 | 15,000 | 15,225 | ||||||
7.38%, 01/15/17 | 15,000 | 15,244 | ||||||
30,469 | ||||||||
Industrial Conglomerates–0.05% | ||||||||
NXP BV/NXP Funding LLC (Netherlands), Sr. Sec. Gtd. Global Notes, 7.88%, 10/15/14 | 5,000 | 5,038 | ||||||
Industrial REIT’s–0.15% | ||||||||
ProLogis, Sr. Unsec. Notes, 6.25%, 03/15/17 | 15,000 | 14,659 | ||||||
Integrated Oil & Gas–0.29% | ||||||||
Petroleos Mexicanos (Mexico), Bonds, 6.63%, 06/15/35(b) | 25,000 | 26,995 | ||||||
Integrated Telecommunication Services–1.38% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, 6.70%, 11/15/13 | 20,000 | 23,228 | ||||||
2.50%, 08/15/15 | 15,000 | 15,186 | ||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Global Notes, 9.38%, 12/15/10 | 60,000 | 61,410 | ||||||
Koninklijke KPN N.V. (Netherlands), Sr. Unsec. Global Bonds, 8.00%, 10/01/10 | 25,000 | 25,142 | ||||||
Qwest Communications International Inc., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/18(b) | 5,000 | 5,194 | ||||||
130,160 | ||||||||
Internet Retail–0.27% | ||||||||
Expedia Inc., Sr. Unsec. Gtd. Notes, 5.95%, 08/15/20(b) | 25,000 | 25,697 | ||||||
Internet Software & Services–0.06% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 8.13%, 03/01/18 | 5,000 | 5,250 | ||||||
Investment Banking & Brokerage–0.89% | ||||||||
E*Trade Financial Corp., Sr. Unsec Global Notes, 7.38%, 09/15/13 | 5,000 | 4,775 | ||||||
Goldman Sachs Group Inc. (The), Sr. Global Notes, 3.70%, 08/01/15 | 55,000 | 55,647 | ||||||
Jefferies Group Inc., Sr. Unsec. Notes, 8.50%, 07/15/19 | 20,000 | 23,462 | ||||||
83,884 | ||||||||
Leisure Facilities–0.16% | ||||||||
Universal City Development Partners Ltd., Sr. Unsec. Gtd. Notes, 8.88%, 11/15/15(b) | 10,000 | 10,200 | ||||||
10.88%, 11/15/16(b) | 5,000 | 5,331 | ||||||
15,531 | ||||||||
Life & Health Insurance–0.71% | ||||||||
Aflac Inc., Sr. Unsec., 6.45%, 08/15/40 | 15,000 | 15,848 | ||||||
Prudential Financial Inc., Series D, Sr. Unsec. Medium-Term Notes, 2.75%, 01/14/13 | 50,000 | 50,973 | ||||||
66,821 | ||||||||
Life Sciences Tools & Services–0.36% | ||||||||
Life Technologies Corp., Sr. Notes, 6.00%, 03/01/20 | 25,000 | 28,632 | ||||||
Patheon Inc. (Canada), Sr. Sec. Notes, 8.63%, 04/15/17(b) | 5,000 | 5,012 | ||||||
33,644 | ||||||||
Movies & Entertainment–0.28% | ||||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 06/15/19 | 25,000 | 26,375 | ||||||
Multi-Line Insurance–0.40% | ||||||||
American Financial Group Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 10,000 | 12,506 | ||||||
CNA Financial Corp., Sr. Unsec. Global Notes, 5.88%, 08/15/20 | 20,000 | 20,293 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Variable Rate Deb., 8.13%, 06/15/38 | 5,000 | 4,939 | ||||||
37,738 | ||||||||
Multi-Utilities–0.84% | ||||||||
Nisource Finance Corp., Sr. Unsec. Gtd. Notes, 7.88%, 11/15/10 | �� | 56,000 | 56,749 | |||||
Pacific Gas & Electric Co., Sr. Unsec. Notes, 5.40%, 01/15/40 | 20,000 | 22,372 | ||||||
79,121 | ||||||||
Office Electronics–0.56% | ||||||||
Xerox Corp., Sr. Unsec. Notes, 6.88%, 08/15/11 | 50,000 | 52,705 | ||||||
Office REIT’s–0.23% | ||||||||
Digital Realty Trust L.P., Unsec. Gtd. Unsub. Bonds, 5.88%, 02/01/20(b) | 20,000 | 21,346 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Core Plus Bond Fund
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Office Services & Supplies–0.11% | ||||||||
IKON Office Solutions, Inc., | ||||||||
Sr. Unsec. Notes, 6.75%, 12/01/25 | $ | 5,000 | $ | 5,125 | ||||
7.30%, 11/01/27 | 5,000 | 5,119 | ||||||
10,244 | ||||||||
Oil & Gas Equipment & Services–0.11% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 5,000 | 5,031 | ||||||
Key Energy Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 12/01/14 | 5,000 | 5,175 | ||||||
10,206 | ||||||||
Oil & Gas Exploration & Production–1.42% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Notes, 6.38%, 09/15/17 | 15,000 | 14,887 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | 25,000 | 26,062 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/19 | 5,000 | 5,388 | ||||||
Encore Acquisition Co., Sr. Gtd. Notes, 9.50%, 05/01/16 | 5,000 | 5,469 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 10,000 | 10,575 | ||||||
Motiva Enterprises LLC, Sr. Unsec. Notes, 6.85%, 01/15/40(b) | 15,000 | 18,956 | ||||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Global Notes, 5.75%, 01/20/20 | 10,000 | 10,668 | ||||||
Petrohawk Energy Corp., Sr. Unsec. Gtd. Global Notes, 7.88%, 06/01/15 | 5,000 | 5,194 | ||||||
Petroleos Mexicanos (Mexico), Gtd. Bonds, 5.50%, 01/21/21(b) | 20,000 | 20,874 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 8.63%, 10/15/19 | 5,000 | 5,250 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Notes, 7.50%, 10/01/17 | 10,000 | 10,438 | ||||||
133,761 | ||||||||
Oil & Gas Refining & Marketing–0.15% | ||||||||
Tesoro Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/01/15 | 5,000 | 4,963 | ||||||
United Refining Co., Series 2, Sr. Unsec. Gtd. Global Notes, 10.50%, 08/15/12 | 10,000 | 9,237 | ||||||
14,200 | ||||||||
Oil & Gas Storage & Transportation–1.45% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 7.63%, 02/15/12 | 50,000 | 54,085 | ||||||
5.20%, 09/01/20 | 15,000 | 16,271 | ||||||
6.45%, 09/01/40 | 15,000 | 16,885 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.25%, 03/01/16 | 5,000 | 5,275 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 5,000 | 5,169 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 5.65%, 03/01/20 | 20,000 | 22,411 | ||||||
Williams Partners L.P., Sr. Unsec. Global Notes, 6.30%, 04/15/40 | 15,000 | 16,667 | ||||||
136,763 | ||||||||
Other Diversified Financial Services–3.47% | ||||||||
Bank of America Corp., Sr. Global Notes, 3.70%, 09/01/15 | 30,000 | 30,030 | ||||||
Sr. Unsec. Global Notes, 4.50%, 04/01/15 | 40,000 | 41,532 | ||||||
6.50%, 08/01/16 | 10,000 | 11,179 | ||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 10,000 | 10,794 | ||||||
Citigroup Inc., Sr. Unsec., 4.75%, 05/19/15 | 25,000 | 25,802 | ||||||
Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 45,000 | 48,565 | ||||||
ERAC USA Finance LLC, Unsec. Gtd. Notes, 5.80%, 10/15/12(b) | 50,000 | 54,167 | ||||||
General Electric Capital Corp., Sr. Unsec. Global Notes, 5.90%, 05/13/14 | 25,000 | 28,341 | ||||||
International Lease Finance Corp., Sr. Unsec. Notes, 8.63%, 09/15/15(b) | 5,000 | 5,062 | ||||||
8.75%, 03/15/17(b) | 5,000 | 5,075 | ||||||
JPMorgan Chase & Co., Floating Rate Medium-Term Notes, 0.96%, 02/26/13(d) | 40,000 | 40,101 | ||||||
JPMorgan Chase Capital XXVII, Series AA, Jr. Unsec. Gtd. Sub. Notes, 7.00%, 11/01/39 | 25,000 | 26,263 | ||||||
326,911 | ||||||||
Packaged Foods & Meats–0.33% | ||||||||
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.50%, 10/15/19 | 5,000 | 5,300 | ||||||
Dole Food Co. Inc., Sr. Sec. Notes, 8.00%, 10/01/16(b) | 5,000 | 5,200 | ||||||
Kraft Foods Inc., Sr. Unsec. Global Notes, 2.63%, 05/08/13 | 20,000 | 20,690 | ||||||
31,190 | ||||||||
Paper Packaging–0.05% | ||||||||
Cascades Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 5,000 | 5,138 | ||||||
Paper Products–0.05% | ||||||||
Neenah Paper, Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/14 | 5,000 | 5,025 | ||||||
Pharmaceuticals–0.19% | ||||||||
Valeant Pharmaceuticals International, Sr. Unsec. Gtd. Global Notes, 8.38%, 06/15/16 | 10,000 | 11,425 | ||||||
Sr. Unsec. Notes, 7.63%, 03/15/20(b) | 5,000 | 6,163 | ||||||
17,588 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Core Plus Bond Fund
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Publishing–0.45% | ||||||||
Gannett Co. Inc., Sr. Unsec. Gtd. Notes, 9.38%, 11/15/17(b) | $ | 5,000 | $ | 5,500 | ||||
Nielsen Finance LLC/Co., Sr. Unsec. Gtd. Disc. Global Notes, 5.31%, 08/01/16(c) | 5,000 | 4,950 | ||||||
Reed Elsevier Capital Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 08/01/11 | 30,000 | 31,599 | ||||||
42,049 | ||||||||
Railroads–0.11% | ||||||||
Kansas City Southern de Mexico S.A. de C.V. (Mexico), Sr. Unsec. Notes, 8.00%, 02/01/18(b) | 10,000 | 10,676 | ||||||
Regional Banks–0.38% | ||||||||
CIT Group Inc., Sr. Sec. Bonds, 7.00%, 05/01/14 | 5,000 | 4,887 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 3.63%, 02/08/15 | 25,000 | 26,264 | ||||||
Zions Bancorp., Unsec. Sub. Notes, 5.50%, 11/16/15 | 5,000 | 4,750 | ||||||
35,901 | ||||||||
Semiconductor Equipment–0.05% | ||||||||
Amkor Technology Inc., Sr. Unsec. Notes, 7.38%, 05/01/18(b) | 5,000 | 5,000 | ||||||
Semiconductors–0.05% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | 5,000 | 5,013 | ||||||
Specialized Finance–0.27% | ||||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Notes, 2.63%, 09/16/12 | 25,000 | 25,834 | ||||||
Specialized REIT’s–0.80% | ||||||||
Entertainment Properties Trust, Sr. Unsec. Notes, 7.75%, 07/15/20(b) | 65,000 | 64,661 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 6.75%, 04/15/20 | 10,000 | 10,363 | ||||||
75,024 | ||||||||
Specialty Chemicals–0.11% | ||||||||
Huntsman International LLC, Sr. Gtd. Notes, 8.63%, 03/15/20(b) | 5,000 | 4,981 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.88%, 11/15/14 | 5,000 | 5,088 | ||||||
10,069 | ||||||||
Steel–0.75% | ||||||||
ArcelorMittal, Sr. Unsec. Global Bonds, 3.75%, 08/05/15 | 30,000 | 29,884 | ||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, 7.00%, 10/15/39 | 40,000 | 41,031 | ||||||
70,915 | ||||||||
Thrifts & Mortgage Finance–0.18% | ||||||||
First Niagara Financial Group Inc., Sr. Unsec. Notes, 6.75%, 03/19/20 | 15,000 | 16,575 | ||||||
Tires & Rubber–0.10% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 7.63%, 03/15/27 | 10,000 | 9,050 | ||||||
Trading Companies & Distributors–0.05% | ||||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 5,000 | 4,938 | ||||||
Wireless Telecommunication Services–0.31% | ||||||||
Clearwire Communications LLC/Clearwire Finance Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 5,000 | 5,050 | ||||||
SBA Telecommunications Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 08/15/19 | 10,000 | 10,850 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/28 | 10,000 | 8,400 | ||||||
Sprint Nextel Corp., Sr. Unsec. Notes, 8.38%, 08/15/17 | 5,000 | 5,162 | ||||||
29,462 | ||||||||
Total Bonds & Notes (Cost $3,173,058) | 3,322,611 | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–29.11% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–13.97% | ||||||||
Pass Through Ctfs., 5.50%, 01/01/34 | 245,296 | 264,101 | ||||||
Pass Through Ctfs., TBA, 4.50%, 09/01/40(e) | 475,000 | 498,304 | ||||||
5.00%, 09/01/40(e) | 340,000 | 360,825 | ||||||
6.00%, 09/01/40(e) | 180,000 | 193,472 | ||||||
1,316,702 | ||||||||
Federal National Mortgage Association (FNMA)–15.14% | ||||||||
Pass Through Ctfs., 4.00%, 09/01/25 | 275,000 | 288,922 | ||||||
Pass Through Ctfs., TBA, 4.50%, 09/01/25(e) | 250,000 | 264,531 | ||||||
5.00%, 09/01/25 to 09/01/40(e) | 545,000 | 579,276 | ||||||
5.50%, 09/01/25 to 09/01/40(e) | 205,000 | 219,542 | ||||||
6.00%, 09/01/40(e) | 70,000 | 75,371 | ||||||
1,427,642 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $2,717,333) | 2,744,344 | |||||||
U.S. Treasury Securities–23.91% | ||||||||
U.S. Treasury Bills–8.80% | ||||||||
0.16%, 09/09/10(f)(g) | 400,000 | 399,988 | ||||||
0.14%, 11/18/2010(f)(g) | 30,000 | 29,995 | ||||||
0.16%, 11/18/2010(f)(g) | 400,000 | 399,888 | ||||||
829,871 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Principal | ||||||||
Amount | Value | |||||||
U.S. Treasury Notes–12.41% | ||||||||
4.50%, 04/30/12 | $ | 300,000 | $ | 320,367 | ||||
2.25%, 05/31/14 | 200,000 | 209,719 | ||||||
2.63%, 12/31/14 | 250,000 | 265,586 | ||||||
2.75%, 05/31/17 | 200,000 | 211,187 | ||||||
3.63%, 08/15/19 | 100,000 | 110,313 | ||||||
3.88%, 08/15/40 | 50,000 | 53,156 | ||||||
1,170,328 | ||||||||
U.S. Treasury Bonds–2.70% | ||||||||
5.38%, 02/15/31 | 145,000 | 190,267 | ||||||
4.25%, 05/15/39 | 20,000 | 22,597 | ||||||
4.50%, 08/15/39 | 35,000 | 41,169 | ||||||
254,033 | ||||||||
Total U.S. Treasury Securities (Cost $2,165,511) | 2,254,232 | |||||||
Asset-Backed Securities–15.00% | ||||||||
Banc of America Commercial Mortgage Inc., Series 2003-1, Class A2, Pass Through Ctfs., 4.65%, 09/11/36 | 40,000 | 42,229 | ||||||
Bear Stearns Commercial Mortgage Securities, Series 2004-PWR6, Class A4, Pass Through Ctfs., 4.52%, 11/11/41 | 25,000 | 25,651 | ||||||
Series 2004-PWR6, Class A6, Pass Through Ctfs., 4.83%, 11/11/41 | 25,000 | 26,825 | ||||||
Series 2005-T18, Class A4, Variable Rate Pass Through Ctfs., 4.93%, 02/13/42(d) | 45,000 | 48,530 | ||||||
Series 2006-PW11, Class AAB, Variable Rate Pass Through Ctfs., 5.62%, 03/11/39(d) | 40,000 | 43,601 | ||||||
Series 2006-T22, Class A2, Variable Rate Pass Through Ctfs., 5.68%, 04/12/38(d) | 19,244 | 19,486 | ||||||
Series 2006-T24, Class A4, Pass Through Ctfs., 5.54%, 10/12/41 | 40,000 | 43,825 | ||||||
Capital One Multi-Asset Execution Trust, Series 2003-B5, Class B5, Pass Through Ctfs., 4.79%, 08/15/13 | 70,000 | 70,314 | ||||||
Citibank Credit Card Issuance Trust, Series 2009-A5, Class A5, Pass Through Ctfs., 2.25%, 12/23/14 | 50,000 | 51,425 | ||||||
Citigroup Mortgage Loan Trust Inc., Series 2004-UST1, Class A4, Variable Rate Pass Through Ctfs., 2.51%, 08/25/34(d) | 33,499 | 32,985 | ||||||
Commercial Mortgage Pass Through Ctfs., Series 2001-J1A, Class A2, Variable Rate Pass Through Ctfs., 6.46%, 02/16/34(b)(d) | 6,194 | 6,243 | ||||||
Series 2001-J2A, Class A2F, 0.78%, 07/16/34(b) | 70,000 | 68,268 | ||||||
Credit Suisse Mortgage Capital Ctfs., | ||||||||
Series 2010-6R, Class 1A1, Pass Through Ctfs., 5.50%, 02/27/37(b) | 31,194 | 32,091 | ||||||
Discover Card Master Trust, Series 2010-A1, Class A1, Floating Rate Pass Through Ctfs., 0.93%, 09/15/15(d) | 40,000 | 40,299 | ||||||
Fannie Mae REMICS, Series 2005-35, Class AC, Pass Through Ctfs., 4.00%, 08/25/18 | 61,065 | 63,077 | ||||||
Freddie Mac REMICS, Series 2450, Class PE, Pass Through Ctfs., 6.00%, 07/15/21 | 16,754 | 16,864 | ||||||
Series 2611, Class HA, Pass Through Ctfs., 4.00%, 10/15/21 | 31,610 | 32,344 | ||||||
Series 2937, Class JD, Pass Through Ctfs., 5.00%, 03/15/28 | 33,635 | 34,495 | ||||||
Series 3339, Class PC, Pass Through Ctfs., 5.00%, 05/15/32 | 35,000 | 36,638 | ||||||
GE Capital Commercial Mortgage Corp., Series 2001-1, Class A2, Pass Through Ctfs., 6.53%, 05/15/33 | 32,876 | 33,431 | ||||||
GE Capital Credit Card Master Note Trust, Series 2010-3, Class A, Pass Through Ctfs., 2.21%, 06/15/16 | 70,000 | 71,618 | ||||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A, Pass Through Ctfs., 4.75%, 07/10/39 | 55,000 | 59,061 | ||||||
Series 2010-C1, Class C, Pass Through Ctfs., 5.64%, 08/10/43(b)(d) | 70,000 | 74,518 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A3, Pass Through Ctfs., 4.65%, 07/15/30 | 30,000 | 30,768 | ||||||
Morgan Stanley Capital I, Series 2005-HQ5, Class A3, Pass Through Ctfs., 5.01%, 01/14/42 | 49,985 | 51,541 | ||||||
Series 2005-HQ7, Class A4, Variable Rate Pass Through Ctfs., 5.38%, 11/14/42(d) | 35,000 | 38,505 | ||||||
Series 2005-T17, Class A4, Pass Through Ctfs., 4.52%, 12/13/41 | 29,647 | 30,417 | ||||||
Series 2005-T19, Class A4A, Pass Through Ctfs., 4.89%, 06/12/47 | 30,000 | 32,601 | ||||||
Nissan Auto Lease Trust, Series 2009-B, Class A3, Pass Through Ctfs., 2.07%, 01/15/15 | 30,000 | 30,349 | ||||||
RBSCF Trust, Series 2010-RR3, Class MS4A, Pass Through Ctfs., 4.97%, 04/16/40(b)(d) | 100,000 | 106,512 | ||||||
TIAA Seasoned Commercial Mortgage Trust, Series 2007-C4, Class A2, Variable Rate Pass Through Ctfs., 5.76%, 08/15/39(d) | 40,000 | 42,417 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C21, Class A4, Variable Rate Pass Through Ctfs., 5.38%, 10/15/44(d) | 20,000 | 22,028 | ||||||
Series 2005-C21, Class AJ, Variable Rate Pass Through Ctfs., 5.38%, 10/15/44(d) | 25,000 | 23,049 | ||||||
Series 2005-C21, Class AM, Variable Rate Pass Through Ctfs., 5.38%, 10/15/44(d) | 20,000 | 20,417 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-K, Class 1A2, Floating Rate Pass Through Ctfs., 4.47%, 07/25/34(d) | 11,621 | 11,522 | ||||||
Total Asset-Backed Securities (Cost $1,356,086) | 1,413,944 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Principal | ||||||||
Amount | Value | |||||||
Municipal Obligations–0.81% | ||||||||
California (State of); Series 2010, Various Purpose Unlimited Tax GO, 5.75%, 03/01/17 | $ | 10,000 | $ | 10,819 | ||||
Georgia (State of) Municipal Electric Authority (Build America Bonds); Series 2010 A, Taxable RB, 6.64%, 04/01/57 | 25,000 | 26,803 | ||||||
Texas (State of) Transportation Commission; Series 2010 B, Taxable RB, 5.18%, 04/01/30 | 35,000 | 39,039 | ||||||
Total Municipal Obligations (Cost $70,070) | 76,661 | |||||||
Money Market Funds–21.72% | ||||||||
Liquid Assets Portfolio–Institutional Class(h) | 1,024,114 | 1,024,114 | ||||||
Premier Portfolio–Institutional Class(h) | 1,024,114 | 1,024,114 | ||||||
Total Money Market Funds (Cost $2,048,228) | 2,048,228 | |||||||
TOTAL INVESTMENTS–125.79% (Cost $11,530,286) | 11,860,020 | |||||||
OTHER ASSETS LESS LIABILITIES–(25.79)% | (2,431,523 | ) | ||||||
NET ASSETS–100.00% | $ | 9,428,497 | ||||||
Investment Abbreviations:
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Disc. | – Discounted | |
GO | – General Obligation Bonds | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
REMICS | – Real Estate Mortgage Investment Conduits | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
TBA | – To Be Announced | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at August 31, 2010 was $884,804, which represented 9.38% of the Fund’s Net Assets. | |
(c) | Discounted note at issue. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on August 31, 2010. | |
(e) | Security purchased on forward commitment basis. This security is subject to dollar roll transactions. See Note 1L. | |
(f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(g) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. | |
(h) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $9,482,058) | $ | 9,811,792 | ||
Investments in affiliated money market funds, at value and cost | 2,048,228 | |||
Total investments, at value (Cost $11,530,286) | 11,860,020 | |||
Cash | 10,609 | |||
Receivables for: | ||||
Investments sold | 13,251 | |||
Variation margin | 3,406 | |||
Fund shares sold | 14,126 | |||
Dividends and interest | 75,740 | |||
Fund expenses absorbed | 36,858 | |||
Investment for trustee deferred compensation and retirement plans | 1,953 | |||
Other assets | 22,722 | |||
Total assets | 12,038,685 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 2,530,220 | |||
Fund shares reacquired | 637 | |||
Dividends | 1,150 | |||
Accrued fees to affiliates | 17,993 | |||
Accrued other operating expenses | 58,235 | |||
Trustee deferred compensation and retirement plans | 1,953 | |||
Total liabilities | 2,610,188 | |||
Net assets applicable to shares outstanding | $ | 9,428,497 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 8,997,800 | ||
Undistributed net investment income | (2,086 | ) | ||
Undistributed net realized gain | 118,971 | |||
Unrealized appreciation | 313,812 | |||
$ | 9,428,497 | |||
Net Assets: | ||||
Class A | $ | 7,219,238 | ||
Class B | $ | 954,222 | ||
Class C | $ | 844,348 | ||
Class R | $ | 152,642 | ||
Class Y | $ | 143,544 | ||
Institutional Class | $ | 114,503 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 671,867 | |||
Class B | 88,831 | |||
Class C | 78,581 | |||
Class R | 14,207 | |||
Class Y | 13,360 | |||
Institutional Class | 10,657 | |||
Class A: | ||||
Net asset value per share | $ | 10.75 | ||
Maximum offering price per share | ||||
(Net asset value of $10.75 divided by 95.25%) | $ | 11.29 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 10.74 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 10.74 | ||
Class R: | ||||
Net asset value and offering price per share | $ | 10.74 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 10.74 | ||
Institutional Class: | ||||
Net asset value and offering price per share | $ | 10.74 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Interest | $ | 254,280 | ||
Dividends from affiliated money market funds | 1,890 | |||
Total investment income | 256,170 | |||
Expenses: | ||||
Advisory fees | 26,080 | |||
Administrative services fees | 50,000 | |||
Custodian fees | 10,446 | |||
Distribution fees: | ||||
Class A | 10,999 | |||
Class B | 5,730 | |||
Class C | 4,523 | |||
Class R | 715 | |||
Transfer agent fees — A, B, C, R and Y | 6,719 | |||
Transfer agent fees — Institutional | 57 | |||
Trustees’ and officers’ fees and benefits | 22,996 | |||
Registration and filing fees | 100,974 | |||
Reports to shareholders | 23,237 | |||
Professional services fees | 53,909 | |||
Other | 15,931 | |||
Total expenses | 332,316 | |||
Less: Fees waived and expenses reimbursed | (274,547 | ) | ||
Net expenses | 57,769 | |||
Net investment income | 198,401 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 122,667 | |||
Futures contracts | 30,025 | |||
152,692 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 237,635 | |||
Futures contracts | (5,591 | ) | ||
232,044 | ||||
Net realized and unrealized gain | 384,736 | |||
Net increase in net assets resulting from operations | $ | 583,137 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the year ended August 31, 2010 and three months ended August 31, 2009
August 31, | August 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 198,401 | $ | 26,890 | ||||
Net realized gain | 152,692 | 5,401 | ||||||
Change in net unrealized appreciation | 232,044 | 81,768 | ||||||
Net increase in net assets resulting from operations | 583,137 | 114,059 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Class A | (194,225 | ) | (17,512 | ) | ||||
Class B | (21,593 | ) | (887 | ) | ||||
Class C | (16,420 | ) | (934 | ) | ||||
Class R | (6,254 | ) | (616 | ) | ||||
Class Y | (5,893 | ) | (885 | ) | ||||
Institutional Class | (5,318 | ) | (736 | ) | ||||
Total distributions from net investment income | (249,703 | ) | (21,570 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Class A | (25,492 | ) | — | |||||
Class B | (3,459 | ) | — | |||||
Class C | (2,577 | ) | — | |||||
Class R | (1,019 | ) | — | |||||
Class Y | (847 | ) | �� | — | ||||
Institutional Class | (762 | ) | — | |||||
Total distributions from net realized gains | (34,156 | ) | — | |||||
Share transactions–net: | ||||||||
Class A | 4,108,451 | 2,807,678 | ||||||
Class B | 718,206 | 200,964 | ||||||
Class C | 598,636 | 217,869 | ||||||
Class R | 40,961 | 102,542 | ||||||
Class Y | 12,808 | 121,790 | ||||||
Institutional Class | 6,079 | 100,746 | ||||||
Net increase in net assets resulting from share transactions | 5,485,141 | 3,551,589 | ||||||
Net increase in net assets | 5,784,419 | 3,644,078 | ||||||
Net assets: | ||||||||
Beginning of year | 3,644,078 | — | ||||||
End of year (includes undistributed net investment income of $(2,086) and $42,860, respectively) | $ | 9,428,497 | $ | 3,644,078 | ||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Core Plus Bond Fund, formerly AIM Core Plus Bond Fund, (the “Fund”) is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in
18 Invesco Core Plus Bond Fund
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these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
The Fund’s investment objective is total return.
The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from |
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investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Funds may invest in obligations issued by agencies and instrumentalities of the U.S. Government that may vary in the level of support they receive from the government. The government may choose not to provide financial support to government sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the underlying fund holding securities of such issuer might not be able to recover its investment from the U.S. Government. Many securities purchased by the Fund are not guaranteed by the U.S. Government. | |
J. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
K. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
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L. | Dollar Roll and Forward Commitment Transactions — The Fund may engage in dollar roll and forward commitment transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. These transactions are often conducted on a to be announced (“TBA”) basis. In a TBA mortgage-backed transaction, the seller does not specify the particular securities to be delivered. Rather, a Fund agrees to accept any security that meets specified terms, such as an agreed upon issuer, coupon rate and terms of the underlying mortgages. TBA mortgage-backed transactions generally settle once a month on a specific date. | |
In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to purchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price and future date. The mortgage-backed securities to be purchased will bear the same coupon as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. Based on the typical structure of dollar roll transactions by the Fund, the dollar roll transactions are accounted for as financing transactions in which the Fund receives compensation as either a “fee” or a “drop”. “Fee” income which is agreed upon amongst the parties at the commencement of the dollar roll and the “drop” which is the difference between the selling price and the repurchase price of the mortgage-backed securities are amortized to income. During the period between the sale and purchase settlement dates, the Fund will not be entitled to receive interest and principal payments on securities purchased and not yet settled. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. Dollar roll transactions are considered borrowings under the 1940 Act. | ||
Forward commitment transactions involve commitments by the Fund to acquire or sell TBA mortgage-backed securities from/to a financial institution, such as a bank or broker-dealer at a specified future date and amount. The TBA mortgage-backed security is marked to market until settlement and the unrealized appreciation or depreciation is recorded in the statement of operations. | ||
At the time the Fund enters into the dollar roll or forward commitment transaction, mortgage-backed securities or other liquid assets held by the Fund having a dollar value equal to the purchase price or in an amount sufficient to honor the forward commitment will be segregated. | ||
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to purchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to purchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed the return on the securities sold. | ||
Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund’s overall interest rate exposure. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .45% | ||
Next $500 million | 0 | .425% | ||
Next $1.5 billion | 0 | .40% | ||
Next $2.5 billion | 0 | .375% | ||
Over $5 billion | 0 | .35% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least December 31, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares to 0.90%, 1.65%, 1.65%, 1.15%, 0.65% and 0.65%, respectively of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended August 31, 2010, the Adviser waived advisory fees $267,772 and reimbursed class level expenses of $5,197, $677, $534, $169, $141 and $57 of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares, respectively.
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The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B, Class C and Class R shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended August 31, 2010, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended August 31, 2010, IDI advised the Fund that IDI retained $2,024 in front-end sales commissions from the sale of Class A shares and $0, $720 and $13 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 2,048,228 | $ | — | $ | — | $ | 2,048,228 | ||||||||
U.S. Treasury Securities | — | 2,254,232 | — | 2,254,232 | ||||||||||||
U.S. Government Sponsored Securities | — | 2,744,344 | — | 2,744,344 | ||||||||||||
Corporate Debt Securities | — | 3,322,611 | — | 3,322,611 | ||||||||||||
Asset Backed Securities | — | 1,413,944 | — | 1,413,944 | ||||||||||||
Municipal Obligations | — | 76,661 | — | 76,661 | ||||||||||||
$ | 2,048,228 | $ | 9,811,792 | $ | — | $ | 11,860,020 | |||||||||
Futures* | (15,923 | ) | — | — | (15,923 | ) | ||||||||||
Total Investments | $ | 2,032,305 | $ | 9,811,792 | $ | — | $ | 11,844,097 | ||||||||
* | Unrealized appreciation (depreciation). |
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NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 895,938 | $ | (379,500 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended August 31, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 30,025 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Interest rate risk | (5,591 | ) | ||
Total | $ | 24,434 | ||
* | The average value of futures $187,123, respectively. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Ultra Bond | 1 | December-2010/Long | $ | 144,594 | $ | 670 | ||||||||||
U.S. 5 Year Notes | 4 | December-2010/Long | 481,281 | 1,741 | ||||||||||||
U.S. Long Bond | 2 | December-2010/Long | 270,063 | 2,433 | ||||||||||||
Subtotal | $ | 895,938 | $ | 4,844 | ||||||||||||
U.S. 10 Year Treasury | 3 | September-2010/Short | (379,500 | ) | (20,767 | ) | ||||||||||
Total | $ | 516,438 | $ | (15,923 | ) | |||||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended August 31, 2010, the Fund paid legal fees of $2,738 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon
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by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Year Ended August 31, 2010 and Three Months Ended August 31, 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 283,859 | $ | 21,570 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 109,368 | ||
Undistributed long-term gain | 33,706 | |||
Net unrealized appreciation — investments | 309,116 | |||
Net unrealized appreciation (depreciation) — other investments | (19,407 | ) | ||
Temporary book/tax differences | (2,086 | ) | ||
Shares of beneficial interest | 8,997,800 | |||
Total net assets | $ | 9,428,497 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
The Fund does not have a capital loss carryforward at period-end.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $7,096,277 and $3,536,406, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 320,480 | ||
Aggregate unrealized (depreciation) of investment securities | (11,364 | ) | ||
Net unrealized appreciation of investment securities | $ | 309,116 | ||
Cost of investments for tax purposes is $11,550,904 |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, undistributed net investment income was increased by $6,356, undistributed net realized gain was decreased by $5,211 and shares of beneficial interest decreased by $1,145. This reclassification had no effect on the net assets of the Fund.
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NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended | Three months ended | |||||||||||||||
August 31, | August 31, | |||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 473,287 | $ | 4,957,006 | 278,669 | $ | 2,792,778 | ||||||||||
Class B | 90,484 | 943,362 | 19,908 | 200,294 | ||||||||||||
Class C | 73,730 | 773,555 | 21,543 | 216,941 | ||||||||||||
Class R | 3,891 | 40,441 | 10,188 | 101,926 | ||||||||||||
Class Y | 3,631 | 38,392 | 12,115 | 120,905 | ||||||||||||
Institutional Class | — | — | 10,001 | 100,010 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | 20,806 | 216,953 | 1,708 | 17,512 | ||||||||||||
Class B | 2,149 | 22,398 | 75 | 774 | ||||||||||||
Class C | 1,761 | 18,357 | 91 | 933 | ||||||||||||
Class R | 697 | 7,259 | 60 | 616 | ||||||||||||
Class Y | 644 | 6,703 | 86 | 885 | ||||||||||||
Institutional Class | 584 | 6,079 | 72 | 736 | ||||||||||||
Automatic conversion of Class B shares to Class A shares: | ||||||||||||||||
Class A | 2,004 | 21,070 | 10 | 104 | ||||||||||||
Class B | (2,004 | ) | (21,070 | ) | (10 | ) | (104 | ) | ||||||||
Reacquired: | ||||||||||||||||
Class A | (104,344 | ) | (1,086,578 | ) | (273 | ) | (2,716 | ) | ||||||||
Class B | (21,771 | ) | (226,484 | ) | — | — | ||||||||||
Class C | (18,543 | ) | (193,276 | ) | (1 | ) | (5 | ) | ||||||||
Class R | (629 | ) | (6,739 | ) | — | — | ||||||||||
Class Y | (3,116 | ) | (32,287 | ) | — | — | ||||||||||
Net increase in share activity | 523,261 | $ | 5,485,141 | 354,242 | $ | 3,551,589 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 49% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | $ | 10.29 | $ | 0.37 | $ | 0.65 | $ | 1.02 | $ | (0.49 | ) | $ | (0.07 | ) | $ | (0.56 | ) | $ | 10.75 | 10.26 | % | $ | 7,219 | 0.87 | %(d) | 5.61 | %(d) | 3.55 | %(d) | 78 | % | |||||||||||||||||||||||||
Three months ended 08/31/09(e) | 10.00 | 0.09 | 0.27 | 0.36 | (0.07 | ) | — | (0.07 | ) | 10.29 | 3.58 | 2,882 | 0.84 | (f) | 12.89 | (f) | 3.47 | (f) | 43 | |||||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 10.29 | 0.29 | 0.64 | 0.93 | (0.41 | ) | (0.07 | ) | (0.48 | ) | 10.74 | 9.34 | 954 | 1.62 | (d) | 6.36 | (d) | 2.80 | (d) | 78 | ||||||||||||||||||||||||||||||||||||
Three months ended 08/31/09(e) | 10.00 | 0.07 | 0.27 | 0.34 | (0.05 | ) | — | (0.05 | ) | 10.29 | 3.39 | 205 | 1.59 | (f) | 13.64 | (f) | 2.72 | (f) | 43 | |||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 10.29 | 0.29 | 0.64 | 0.93 | (0.41 | ) | (0.07 | ) | (0.48 | ) | 10.74 | 9.34 | 844 | 1.62 | (d) | 6.36 | (d) | 2.80 | (d) | 78 | ||||||||||||||||||||||||||||||||||||
Three months ended 08/31/09(e) | 10.00 | 0.07 | 0.27 | 0.34 | (0.05 | ) | — | (0.05 | ) | 10.29 | 3.39 | 223 | 1.59 | (f) | 13.64 | (f) | 2.72 | (f) | 43 | |||||||||||||||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 10.29 | 0.34 | 0.64 | 0.98 | (0.46 | ) | (0.07 | ) | (0.53 | ) | 10.74 | 9.88 | 153 | 1.12 | (d) | 5.86 | (d) | 3.30 | (d) | 78 | ||||||||||||||||||||||||||||||||||||
Three months ended 08/31/09(e) | 10.00 | 0.08 | 0.27 | 0.35 | (0.06 | ) | — | (0.06 | ) | 10.29 | 3.51 | 105 | 1.09 | (f) | 13.14 | (f) | 3.22 | (f) | 43 | |||||||||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 10.29 | 0.40 | 0.63 | 1.03 | (0.51 | ) | (0.07 | ) | (0.58 | ) | 10.74 | 10.43 | 144 | 0.62 | (d) | 5.36 | (d) | 3.80 | (d) | 78 | ||||||||||||||||||||||||||||||||||||
Three months ended 08/31/09(e) | 10.00 | 0.09 | 0.27 | 0.36 | (0.07 | ) | — | (0.07 | ) | 10.29 | 3.64 | 126 | 0.59 | (f) | 12.64 | (f) | 3.72 | (f) | 43 | |||||||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 10.29 | 0.40 | 0.64 | 1.04 | (0.52 | ) | (0.07 | ) | (0.59 | ) | 10.74 | 10.43 | 115 | 0.62 | (d) | 5.29 | (d) | 3.80 | (d) | 78 | ||||||||||||||||||||||||||||||||||||
Three months ended 08/31/09(e) | 10.00 | 0.09 | 0.27 | 0.36 | (0.07 | ) | — | (0.07 | ) | 10.29 | 3.64 | 104 | 0.59 | (f) | 12.68 | (f) | 3.72 | (f) | 43 | |||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $4,399, $573, $452, $143, $119 and $108 for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares, respectively. | |
(e) | Commencement date of June 3, 2009. | |
(f) | Annualized. |
26 Invesco Core Plus Bond Fund
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Core Plus Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Core Plus Bond Fund (formerly known as AIM Core Plus Bond Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets 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 Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
27 Invesco Core Plus Bond Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 1,055.00 | $ | 4.51 | $ | 1,020.82 | $ | 4.43 | 0.87 | % | ||||||||||||||||||
B | 1,000.00 | 1,050.20 | 8.37 | 1,017.04 | 8.24 | 1.62 | ||||||||||||||||||||||||
C | 1,000.00 | 1,051.10 | 8.38 | 1,017.04 | 8.24 | 1.62 | ||||||||||||||||||||||||
R | 1,000.00 | 1,052.80 | 5.80 | 1,019.56 | 5.70 | 1.12 | ||||||||||||||||||||||||
Y | 1,000.00 | 1,055.40 | 3.21 | 1,022.08 | 3.16 | 0.62 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 1,055.40 | 3.21 | 1,022.08 | 3.16 | 0.62 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
28 Invesco Core Plus Bond Fund
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Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Core Plus Bond Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Advisers are appropriate and that Invesco Advisers currently is providing satisfactory advisory services in accordance with the terms of the Fund’s investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund’s portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board did not consider Fund performance as a relevant factor in considering whether to approve
29 Invesco Core Plus Bond Fund
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the investment advisory agreement because the Fund was newly launched in 2009 and has no performance history.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board noted that no Lipper material was available for the Fund. The Board compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the rate for the other mutual fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least December 31, 2011 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board considered the effect this expense limitation would have on the Fund’s estimated total expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule includes four breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 0.00% | |||
Corporate Dividends Received Deduction* | 0.00% | |||
U.S. Treasury Obligations* | 10.72% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
CPB-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Floating Rate Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
28 | Financial Statements | |
31 | Notes to Financial Statements | |
38 | Financial Highlights | |
39 | Auditor’s Report | |
40 | Fund Expenses | |
41 | Approval of Investment Advisory and Sub-Advisory Agreements | |
43 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Floating Rate Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Floating Rate Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended August 31, 2010, Invesco Floating Rate Fund, Class A shares at net asset value (NAV) returned 11.28%, underperforming the S&P/LSTA Leveraged Loan Index. The Fund invests in lower rated fixed income instruments, primarily senior secured corporate loans.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares* | 11.28 | % | ||
Class C Shares* | 10.75 | |||
Class R Shares* | 11.15 | |||
Class Y Shares* | 11.56 | |||
Institutional Class Shares* | 11.65 | |||
Barclays Capital U.S. Aggregate Index▼ (Broad Market Index) | 9.18 | |||
S&P/LSTA Leveraged Loan Index■ (Style-Specific Index) | 12.76 | |||
Lipper Loan Participation Funds Category Average▼ (Peer Group) | 10.82 | |||
▼Lipper Inc.; ■Invesco, Standard & Poor’s |
*The Fund’s return during the period benefited from a change in pricing methodology related to corporate loans. |
How we invest
We believe a highly diversified pool of bank loans from the broadest spectrum of issuers and consisting of the highest credit quality available in line with portfolio objectives has the best risk-reward potential.
Our credit analysts review all holdings and prospective holdings.
Key consideration is given to the following:
n | Management. Factors include direct operating experience in managing this business, management depth and incentives and track record operating in a leveraged environment. | |
n | Industry position and dynamics. Factors include the company’s industry position, life cycle phase of the indus- |
try, barriers to entry and current industry capacity and utilization. | ||
n | Asset quality. Considerations may include valuations of hard and intangible assets, how easily those assets can be converted to cash and appropriateness to leverage those assets. | |
n | Divisibility. This factor focuses on operating and corporate structures, ability to divide easily and efficiently, examination of non-core assets and valuation of multiple brand names. | |
n | Sponsors. Considerations include the firm’s track record of quality transactions, access to additional capital and control or ownership of the sponsoring firm. | |
n | Cash flow. We examine the firm’s sales and earnings breakdown by product, divisions and subsidiaries. We look at |
the predictability of corporate earnings and the cash requirement of the business and conduct an examination of the business cycles, seasonality, international pressures and so forth. | ||
n | Recovery and loan-to-value. These factors focus on further examination of the default probability and the rate of recovery associated with loans. |
The portfolio is constructed using a conservative bias to help manage credit risk, while focusing on optimization of return relative to appropriate benchmarks. We constantly monitor the holdings in the portfolio and conduct daily, weekly and monthly meetings with portfolio managers and analysts, as well as with firms and loan sponsors.
Our proprietary systems generate “alert lists” that trigger immediate reviews of credits when they fall below price targets, are rated BB or lower or are performing off plan. Our active sell discipline considers two key factors for each portfolio position:
n | Company objective. Will unfavorable industry trends, poor performance or lack of access to capital cause the company to underperform? | |
n | Investment objective. Has the earnings potential or price potential been met or exceeded, or do better relative valuation opportunities exist in the market? |
Market conditions and your Fund
For the fiscal year ended August 31, 2010, the bank loan market continued its recovery. While the market has yet to return to its historical trading range and the pace of the recovery slowed during the first half of 2010, bank loans showed continued improvement. We attribute much of this improvement to a broader
Portfolio Composition†
By credit quality rating based on total investments
B | 0.5 | % | ||
Baa2 | 0.1 | |||
Baa3 | 1.4 | |||
Ba1 | 5.3 | |||
Ba2 | 15.9 | |||
Ba3 | 27.9 | |||
B1 | 19.8 | |||
B2 | 9.1 | |||
B3 | 2.6 | |||
Caa1 | 1.7 | |||
Caa2 | 0.1 | |||
Caa3 | 0.7 | |||
NR | 4.9 | |||
Equity | 2.0 | |||
Money Market Funds | 8.0 |
Top 10 Fixed Income Issuers*
1. | Texas Competitive Electric Holdings Co. LLC | 2.3 | % | |||||
2. | Mediacom Communications Corp. | 1.9 | ||||||
3. | First Data Corp. | 1.9 | ||||||
4. | Charter Communications, Inc. | 1.7 | ||||||
5. | The Servicemaster Co. | 1.6 | ||||||
6. | Univision Communications Inc. | 1.5 | ||||||
7. | Calpine Corp. | 1.5 | ||||||
8. | Sungard Data Systems, Inc. | 1.5 | ||||||
9. | Harrah’s Operating Co., Inc. | 1.4 | ||||||
10. | HCA Inc. | 1.4 |
Total Net Assets | $681.6 million | |
Total Number of Holdings* | 597 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
† | Source: Moody’s. This table is calculated based on the highest rating assigned by Moody’s to an individual security. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from Aaa (highest) to C (lowest); ratings are subject to change without notice. “NR” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Moody’s rating methodology, please visit www.moodys.com and select ‘Rating Methodologies’ under Research and Ratings on the homepage. |
* | Excluding money market fund holdings. |
4 | Invesco Floating Rate Fund |
Table of Contents
buyer base and a greater balance between supply and demand factors. The impact of these factors was particularly evident during the first part of the year as new loan issuance was initially unable to keep pace with demand. This pushed prices of previously issued loans represented in the S&P/LSTA Leveraged Loan Index to their highest levels in more than a year during the first week of May 2010. The average prices of loans in the index subsequently declined slightly. We attribute this decline to concerns about debt problems involving several European countries, namely Greece, and concerns about slower economic growth in the U.S. However, we did not see any concurrent deterioration in fundamentals in the bank loan market.
The bank loan market continued to be more visible in 2010, and there was a greater correlation between market, economic and other trends. This visibility was disrupted by the debt crises involving several southern European economies.
We have also seen an improvement in credit quality as evidenced by a steady decline in the trailing 12-month default rate. Furthermore, the London Interbank Offered Rate (LIBOR®) component of bank loan interest payments is reset when the contracts change – typically between 30 and 90 days – so investors may benefit from future increases in interest rates with little or no corresponding price exposure. This is one of the unique features of the bank loan asset class and provides investors with a positive component when interest rates are rising.
Low LIBOR rates had a negative impact on the performance of the bank loan asset class. We expect these rates will increase at some point in the future. However, the the U.S. Federal Reserve (the Fed) maintained an accommodative monetary policy amid concerns of a slowing economic recovery. At the close of the reporting period, the Fed was indicating it intended to maintain this low interest rate policy for some time.
All share classes of Invesco Floating Rate Fund at NAV posted double-digit returns for the reporting period. The Fund benefited from our focus on deeply discounted bank loans. Performance was also enhanced by our rotation into such industries as chemicals and autos and the sale of certain print media holdings. Our retention of certain positions where a borrower was involved in bankruptcy proceedings also aided Fund performance.
While the Fund performed well relative to its peer group category average, it trailed the S&P/LSTA Leveraged Loan Index. An unusually wide spread between bid and asking prices for loans hurt Fund performance relative to the index. Moreover, inflows into the Fund increased its total net assets.
As always, we appreciate your continued participation in Invesco Floating Rate Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Tom Ewald
Portfolio manager, is lead manager of Invesco Floating Rate Fund. Mr. Ewald joined Invesco in 2000 as a credit analyst and was promoted to portfolio manager of certain other funds in 2001. Prior to joining Invesco, Mr. Ewald was a portfolio manager at another firm. Mr. Ewald earned an A.B. from Harvard College and an M.B.A. from the Darden School of Business at the University of Virginia.
Greg Stoeckle
Portfolio manager, is manager of Invesco Floating Rate Fund. Mr. Stoeckle joined Invesco in 1999 and has held several senior management positions within the bank loan group. He began his investment career in 1987 as a credit analyst for another firm. Mr. Stoeckle earned a B.S. from Ursinus College and an M.B.A. from Saint Joseph’s University.
5 | Invesco Floating Rate Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Index data from 4/30/97, Fund data from 5/1/97
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not.
Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the
one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 | Invesco Floating Rate Fund |
Table of Contents
Average Annual Total Returns | ||||
As of 8/31/10, including maximum applicable sales charges | ||||
Class A Shares | ||||
Inception (5/1/97) | 3.61 | % | ||
10 Years | 2.83 | |||
5 Years | 1.87 | |||
1 Year | 8.53 | |||
Class C Shares | ||||
Inception (3/31/00) | 2.81 | % | ||
10 Years | 2.69 | |||
5 Years | 1.89 | |||
1 Year | 9.75 | |||
Class R Shares | ||||
10 Years | 3.00 | % | ||
5 Years | 2.21 | |||
1 Year | 11.15 | |||
Class Y Shares | ||||
10 Years | 3.11 | % | ||
5 Years | 2.44 | |||
1 Year | 11.56 | |||
Institutional Class Shares | ||||
10 Years | 3.24 | % | ||
5 Years | 2.68 | |||
1 Year | 11.65 | |||
The Fund’s return during the period benefited from a change in pricing methodology related to corporate loans. | ||||
On April 13, 2006, the Fund reorganized from a Closed-End Fund to an Open-End Fund. Performance shown for class A shares prior to that date is that of the Closed-End Fund’s Class B shares and includes the management and 12b-1 fees applicable to B shares. The Closed-End Fund’s B-share performance reflects any applicable fee waivers or expense reimbursements.
On April 13, 2006, the Fund reorganized from a Closed-End Fund to an Open-End Fund. Performance shown for class C shares prior to that date is that of the Closed-End Fund’s Class C shares and includes the management and 12b-1 fees applicable to C shares. The Closed-End Fund’s C-share performance reflects any applicable fee waivers or expense reimbursements.
Class R shares incepted on April 13, 2006. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
Class Y shares incepted on October 3, 2008. Performance shown prior to that
Average Annual Total Returns | ||||
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges. | ||||
Class A Shares | ||||
Inception (5/1/97) | 3.48 | % | ||
10 Years | 2.70 | |||
5 Years | 1.71 | |||
1 Year | 12.54 | |||
Class C Shares | ||||
Inception (3/31/00) | 2.62 | % | ||
10 Years | 2.54 | |||
5 Years | 1.71 | |||
1 Year | 13.68 | |||
Class R Shares | ||||
10 Years | 2.87 | % | ||
5 Years | 2.03 | |||
1 Year | 14.74 | |||
Class Y Shares | ||||
10 Years | 2.97 | % | ||
5 Years | 2.24 | |||
1 Year | 15.50 | |||
Institutional Class Shares | ||||
10 Years | 3.11 | % | ||
5 Years | 2.51 | |||
1 Year | 15.42 | |||
The Fund’s return during the period benefited from a change in pricing methodology related to corporate loans. | ||||
date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
Institutional Class shares incepted on April 13, 2006. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invescoaim.com/performance for the most recent month-end performance. Performance figures reflect Fund expenses, the reinvestment of distributions, and changes in net asset value. Investment return and principal will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date
of this report for Class A, Class C, Class R, Class Y and Institutional Class shares was 1.27%, 1.77%, 1.52%, 1.02% and 0.91%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 2.50% sales charge and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. The CDSC on Class C shares is 1% for the first year after purchase. Class R, Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
A redemption fee of 2% will be imposed on certain redemptions or exchanges out of the Fund within 31 days of purchase. Exceptions to the redemption fee are listed in the Fund’s prospectus.
7 | Invesco Floating Rate Fund |
Table of Contents
Invesco Floating Rate Fund’s investment objectives are top provide a high level of current income and, secondarily, preservation of capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | As of the close of business on April 13, 2006, Invesco Floating Rate Fund reorganized from a Closed-End Fund to an Open-End Fund. Information presented for Class A shares prior to the reorganization includes financial data for Class B shares of the Closed-End Fund. Information presented for Class C shares prior to the reorganization includes financial data for Class C shares of the Closed-End Fund. | |
n | On July 27, 2006, all Class B1 shares converted into Class A shares. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available only to certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | To the extent that the Fund is concentrated in securities of issuers in the banking and financial services industries, the Fund’s performance will depend to a greater extent on the overall condition of those industries. The value of these securities can be sensitive to changes in government regulation, interest rates and economic downturns in the U.S. and abroad. | |
n | The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. | |
n | The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall |
securities markets. Derivatives are subject to counterparty risk–the risk that the other party will not complete the transaction with the Fund. | ||
n | The Fund’s foreign investments may be affected by changes in the foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. | |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. | |
n | Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities. | |
n | The majority of the Fund’s assets are likely to be invested in loans and securities that are less liquid than those traded on national exchanges. In the event the Fund voluntarily or involuntarily liquidates portfolio assets during periods of infrequent trading, it may not receive full value for those assets. | |
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. | |
n | The Fund is non-diversified and can invest a greater portion of its assets in a single issuer. A change in the value of the issuer could affect the value of the Fund more than if it was a diversified Fund. | |
n | An issuer’s ability to prepay principal on a loan or debt security prior to maturity can limit the Fund’s potential gains. Prepayments may require the Fund to replace the loan or debt security with a lower yielding security, adversely affecting the Fund’s yield. |
About indexes used in this report
n | The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market. | |
n | The S&P/LSTA Leveraged Loan Index is a weekly total return index that tracks the current outstanding balance and spread over LIBOR for fully funded term loans. | |
n | The Lipper Loan Participation Funds Category Average represents an average of all of the funds in the Lipper Loan Participation Funds category. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | AFRAX | |
Class C Shares | AFRCX | |
Class R Shares | AFRRX | |
Class Y Shares | AFRYX | |
Institutional Class Shares | AFRIX |
8 | Invesco Floating Rate Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Senior Secured Floating Rate Interest Loans–94.63%(b)(c) | ||||||||||||||||
Advertising–0.07% | ||||||||||||||||
Lamar Media Corp., Term Loan B | 4.25 | % | 12/30/16 | $ | 232,842 | $ | 234,587 | |||||||||
Valassis Communications, Inc. | ||||||||||||||||
Delay Draw Term Loan | 2.79 | % | 03/02/14 | 68,464 | 67,152 | |||||||||||
Term Loan B | 2.79 | % | 03/02/14 | 205,751 | 201,808 | |||||||||||
503,547 | ||||||||||||||||
Aerospace & Defense–1.75% | ||||||||||||||||
Aero Technology Supply | ||||||||||||||||
Revolver Loan(d) | 0 | % | 03/12/13 | 4,608 | 4,539 | |||||||||||
Revolver Loan | 11.25 | % | 03/12/13 | 849 | 836 | |||||||||||
Term Loan(e) | — | 10/16/14 | 6,000,000 | 1,943,541 | ||||||||||||
Term Loan | 11.25 | % | 03/12/13 | 137,088 | 133,403 | |||||||||||
Term Loan | 10.75 | % | 03/12/15 | 141,818 | 138,272 | |||||||||||
Dubai Aerospace Enterprise | ||||||||||||||||
Term Loan B1 | 4.23 | % | 07/31/14 | 270,718 | 247,030 | |||||||||||
Term Loan B2 | 4.14 – 4.23 | % | 07/31/14 | 262,819 | 239,822 | |||||||||||
DynCorp International, Term Loan | 6.25 | % | 07/07/16 | 1,067,350 | 1,063,614 | |||||||||||
Hawker Beechcraft Corp., Term Loan | 2.26 – 2.53 | % | 03/26/14 | 1,000,612 | 801,643 | |||||||||||
McKechnie Aerospace | ||||||||||||||||
First Lien Term Loan | 2.27 | % | 05/11/14 | 529,617 | 511,081 | |||||||||||
Second Lien Term Loan | 5.27 | % | 05/11/15 | 141,273 | 134,916 | |||||||||||
Sequa Corp., Term Loan B | 3.79 | % | 12/03/14 | 3,313,552 | 3,080,775 | |||||||||||
Spirit Aerosystems, Inc., Term Loan B1 | 2.28 | % | 09/30/13 | 1,515,411 | 1,474,116 | |||||||||||
Triumph Group, Inc., Term Loan B | 4.50 | % | 06/16/16 | 824,174 | 828,637 | |||||||||||
Wesco Aircraft Hardware Corp., Term Loan | 2.52 | % | 09/29/13 | 366,907 | 355,211 | |||||||||||
Wyle Laboratories, Inc., Incremental Term Loan | 8.00 | % | 03/25/16 | 998,066 | 995,261 | |||||||||||
11,952,697 | ||||||||||||||||
Air Freight & Logistics–0.26% | ||||||||||||||||
CEVA Group PLC | ||||||||||||||||
U.S. Syn LOC | 0.43 | % | 11/04/13 | 215,837 | 190,296 | |||||||||||
U.S. Term Loan | 3.26 | % | 11/04/13 | 1,779,576 | 1,568,990 | |||||||||||
1,759,286 | ||||||||||||||||
Airlines–0.74% | ||||||||||||||||
Delta Air Lines, Inc. | �� | |||||||||||||||
Revolver Loan(d) | 0 | % | 04/30/12 | 2,000,000 | 1,821,260 | |||||||||||
Revolver Loan(d) | 0 | % | 03/28/13 | 1,500,000 | 1,278,750 | |||||||||||
Syn Revolver Credit Loan(e) | — | 04/30/12 | 2,054,535 | 1,973,637 | ||||||||||||
5,073,647 | ||||||||||||||||
Airport Services–0.75% | ||||||||||||||||
Dollar Thrifty Automotive Group, Inc., Term Loan | 2.76 | % | 06/15/13 | 1,225,000 | 1,209,687 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Airport Services–(continued) | ||||||||||||||||
Hertz Global Holdings Inc. | ||||||||||||||||
Syn LOC(e) | — | % | 12/21/12 | $ | 579,200 | $ | 566,498 | |||||||||
Syn LOC | 0.34 | % | 12/21/12 | 45,505 | 44,507 | |||||||||||
Term Loan B(e) | — | 12/21/12 | 3,131,823 | 3,065,272 | ||||||||||||
Term Loan B | 2.02 | % | 12/21/12 | 246,052 | 240,824 | |||||||||||
5,126,788 | ||||||||||||||||
Alternative Carriers–0.94% | ||||||||||||||||
Level 3 Communications, Inc. | ||||||||||||||||
Add On Term Loan B | 11.50 | % | 03/13/14 | 204,533 | 221,727 | |||||||||||
Term Loan | 2.53 – 2.78 | % | 03/13/14 | 6,903,226 | 6,202,134 | |||||||||||
6,423,861 | ||||||||||||||||
Aluminum–0.05% | ||||||||||||||||
Noranda Aluminum, Inc., Term Loan B | 2.05 | % | 05/18/14 | 382,194 | 359,900 | |||||||||||
Apparel Retail–1.01% | ||||||||||||||||
Destination Maternity Corp., Term Loan B | 2.51 – 2.77 | % | 03/13/13 | 112,952 | 104,481 | |||||||||||
Neiman Marcus, Inc., Term Loan | 2.30 – 2.54 | % | 04/06/13 | 7,129,222 | 6,794,255 | |||||||||||
6,898,736 | ||||||||||||||||
Apparel, Accessories & Luxury Goods–0.10% | ||||||||||||||||
Phillips Van Heusen Corp., Term Loan B | 4.75 | % | 05/06/16 | 658,085 | 663,172 | |||||||||||
Auto Parts & Equipment–3.84% | ||||||||||||||||
AutoTrader.com, Inc., Term Loan B | 6.00 | % | 06/14/16 | 3,239,213 | 3,253,384 | |||||||||||
Dana Holding Corp., Term Loan | 4.52 – 6.50 | % | 01/30/15 | 6,936,971 | 6,824,730 | |||||||||||
Dayco Products, LLC | ||||||||||||||||
Term Loan B | 10.50 | % | 05/13/14 | 72,245 | 69,355 | |||||||||||
Term Loan C | 12.50 | % | 11/13/14 | 11,024 | 9,480 | |||||||||||
Federal-Mogul Corp. | ||||||||||||||||
Delay Draw Term Loan C2 | 2.24 | % | 12/27/15 | 357,727 | 313,011 | |||||||||||
Term Loan B | 2.21 – 2.24 | % | 12/27/14 | 6,396,258 | 5,602,707 | |||||||||||
Term Loan C2 | 2.21 | % | 12/27/15 | 2,432,546 | 2,128,478 | |||||||||||
Goodyear Tire & Rubber Co. (The), Second Lien Term Loan | 2.24 | % | 04/30/14 | 4,035,343 | 3,773,772 | |||||||||||
Key Safety Systems, Inc., Term Loan B | 2.51 – 2.53 | % | 03/08/14 | 997,348 | 888,886 | |||||||||||
Pep Boys-Manny, Moe & Jack (The), Term Loan | 2.54 | % | 10/27/13 | 40,464 | 38,567 | |||||||||||
Tenneco Automotive, Term Loan B | 5.01 | % | 06/03/16 | 2,600,000 | 2,597,205 | |||||||||||
Veyance Technologies, Inc. | ||||||||||||||||
First Lien Delay Draw Term Loan | 2.77 | % | 07/31/14 | 106,861 | 92,381 | |||||||||||
First Lien Term Loan | 2.77 | % | 07/31/14 | 709,115 | 613,090 | |||||||||||
26,205,046 | ||||||||||||||||
Automobile Manufacturers–1.24% | ||||||||||||||||
Ford Motor Co., Term Loan | 3.03 | % | 12/15/13 | 8,731,656 | 8,422,249 | |||||||||||
Automotive Retail–0.62% | ||||||||||||||||
KAR Holdings, Inc., Term Loan B | 3.02 | % | 10/21/13 | 4,402,541 | 4,248,452 | |||||||||||
Broadcasting–7.89% | ||||||||||||||||
Cequel Communications, LLC, First Lien Term Loan | 2.30 | % | 11/05/13 | 1,447,284 | 1,399,068 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Broadcasting–(continued) | ||||||||||||||||
Charter Communications, Inc. | ||||||||||||||||
Term Loan B1 | 2.26 | % | 03/06/14 | $ | 2,003,781 | $ | 1,900,045 | |||||||||
Term Loan C(e) | — | 09/06/16 | 3,654,696 | 3,509,349 | ||||||||||||
Term Loan C | 3.79 | % | 09/06/16 | 5,657,734 | 5,432,726 | |||||||||||
Term Loan Refinance(e) | — | 03/06/14 | 931,361 | 883,144 | ||||||||||||
CSC Holdings, Inc. | ||||||||||||||||
Incremental Term Loan B2 | 2.02 | % | 03/29/16 | 1,466,546 | 1,438,770 | |||||||||||
Incremental Term Loan B3 | 2.02 | % | 03/29/16 | 2,381,323 | 2,305,919 | |||||||||||
CW Media Holdings, Term Loan B | 3.53 | % | 02/16/15 | 547,730 | 539,514 | |||||||||||
Gray Television Inc., Term Loan B | 3.80 | % | 12/31/14 | 107,029 | 101,735 | |||||||||||
Insight Communications Co., Term Loan B | 2.06 – 2.28 | % | 04/06/14 | 1,070,445 | 1,027,626 | |||||||||||
Intelsat, Ltd. | ||||||||||||||||
Term Loan B2-A | 3.03 | % | 01/03/14 | 2,200,923 | 2,090,734 | |||||||||||
Term Loan B2-B | 3.03 | % | 01/03/14 | 2,200,246 | 2,089,035 | |||||||||||
Term Loan B2-C | 3.03 | % | 01/03/14 | 2,200,246 | 2,089,034 | |||||||||||
Ion Media Networks, Inc. (Paxson Communications), Term Loan(f) | 4.38 | % | 01/15/12 | 2,801,171 | 756,316 | |||||||||||
Local TV LLC, Term Loan B | 2.27 | % | 05/07/13 | 905,206 | 812,988 | |||||||||||
Mediacom Communications Corp. | ||||||||||||||||
Add on Term Loan | 5.50 | % | 03/31/17 | 3,182,512 | 3,118,846 | |||||||||||
Term Loan D1 | 2.01 | % | 01/31/15 | 2,002,222 | 1,871,457 | |||||||||||
Term Loan D2 | 2.01 | % | 01/31/15 | 276,922 | 258,836 | |||||||||||
Term Loan E | 4.50 | % | 10/23/17 | 2,013,344 | 1,905,116 | |||||||||||
Term Loan F | 4.50 | % | 10/23/17 | 6,040,031 | 5,748,086 | |||||||||||
Univision Communications Inc. | ||||||||||||||||
Term Loan(e) | — | 09/29/14 | 652,437 | 561,330 | ||||||||||||
Term Loan | 2.51 | % | 09/29/14 | 11,422,845 | 9,827,759 | |||||||||||
WaveDivision Holdings, LLC, Term Loan B | 2.61 – 2.70 | % | 06/30/14 | 377,530 | 368,091 | |||||||||||
Weather Channel (The), Term Loan B | 5.00 | % | 09/14/15 | 524,486 | 525,706 | |||||||||||
WOW! | ||||||||||||||||
First Lien Term Loan | 2.79 – 4.75 | % | 06/30/14 | 984,934 | 893,828 | |||||||||||
First Lien Term Loan A | 6.76 – 8.75 | % | 06/28/14 | 2,359,131 | 2,320,796 | |||||||||||
53,775,854 | ||||||||||||||||
Building Products–0.25% | ||||||||||||||||
Building Materials Corp. of America, Term Loan B | 3.06 | % | 02/22/14 | 1,376,497 | 1,355,567 | |||||||||||
Champion Window Manufacturing Inc., Term Loan | 7.50 | % | 12/31/13 | 234,800 | 224,234 | |||||||||||
United Subcontractors, Inc., Term Loan | 2.04 | % | 06/30/15 | 107,501 | 94,601 | |||||||||||
1,674,402 | ||||||||||||||||
Casinos & Gaming–0.94% | ||||||||||||||||
BLB Investors, LLC, First Lien Term Loan | 4.75 | % | 07/18/11 | 887,867 | 661,461 | |||||||||||
Cannery Casino | ||||||||||||||||
Delay Draw Term Loan | 4.55 | % | 05/18/13 | 936,358 | 873,154 | |||||||||||
Second Lien Term Loan | 4.52 | % | 05/18/14 | 1,084,000 | 888,880 | |||||||||||
Term Loan B | 4.52 | % | 05/18/13 | 699,725 | 652,493 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Casinos & Gaming–(continued) | ||||||||||||||||
Las Vegas Sands Corp. | ||||||||||||||||
Delay Draw Term Loan 1(e) | — | % | 05/23/14 | $ | 218,915 | $ | 197,639 | |||||||||
Delay Draw Term Loan 1 | 2.01 | % | 05/23/14 | 156,529 | 141,316 | |||||||||||
Delay Draw Term Loan 2 | 2.01 | % | 05/23/13 | 459,625 | 414,955 | |||||||||||
Term Loan B(e) | — | 05/23/14 | 2,195,712 | 1,981,970 | ||||||||||||
Term Loan B | 2.01 | % | 05/23/14 | 630,127 | 568,787 | |||||||||||
6,380,655 | ||||||||||||||||
Coal & Consumable Fuels–0.13% | ||||||||||||||||
Oxbow Carbon LLC, Term Loan | 2.53 | % | 05/08/14 | 901,959 | 852,355 | |||||||||||
Commercial Printing–0.53% | ||||||||||||||||
Aster Sr. Flint Inc. | ||||||||||||||||
Term Loan B5 | 2.64 | % | 12/31/12 | 795,787 | 728,145 | |||||||||||
Term Loan C5 | 2.64 | % | 12/31/13 | 813,772 | 748,671 | |||||||||||
Cenveo, Inc. | ||||||||||||||||
Delay Draw Term Loan | 5.04 | % | 06/21/13 | 61,595 | 60,501 | |||||||||||
Term Loan C | 5.04 | % | 06/21/13 | 2,134,070 | 2,096,190 | |||||||||||
3,633,507 | ||||||||||||||||
Commodity Chemicals–0.51% | ||||||||||||||||
LyondellBasell Industries, Term Loan B | 5.50 | % | 04/08/16 | 297,879 | 300,629 | |||||||||||
Univar Corp., Term Loan B | 3.26 | % | 10/10/14 | 3,208,884 | 3,142,027 | |||||||||||
3,442,656 | ||||||||||||||||
Communications Equipment–1.69% | ||||||||||||||||
Consolidated Communications, Inc. | ||||||||||||||||
Delay Draw Term Loan | 2.77 | % | 12/31/14 | 1,000,000 | 949,375 | |||||||||||
Term Loan B | 2.77 | % | 12/31/14 | 3,000,000 | 2,848,125 | |||||||||||
NTELOS Holdings Corporations | ||||||||||||||||
Add On Term Loan(e) | — | 08/31/15 | 767,142 | 770,594 | ||||||||||||
Term Loan B | 5.75 | % | 08/07/15 | 5,025,902 | 5,048,518 | |||||||||||
One Communications Corp., Term Loan C | 11.75 – 12.25 | % | 06/30/12 | 2,007,155 | 1,933,152 | |||||||||||
11,549,764 | ||||||||||||||||
Computer Hardware–0.03% | ||||||||||||||||
Quantum Corp., Term Loan B | 3.76 | % | 07/12/14 | 185,594 | 175,619 | |||||||||||
Construction Materials–0.16% | ||||||||||||||||
Hillman Group (The), Term Loan B | 5.50 | % | 05/28/16 | 1,116,901 | 1,113,762 | |||||||||||
Construction, Farm Machinery & Heavy Trucks–0.13% | ||||||||||||||||
Manitowoc Company, Inc. (The), Term Loan B | 8.00 | % | 11/06/14 | 875,041 | 878,318 | |||||||||||
Data Processing & Outsourced Services–2.41% | ||||||||||||||||
Fidelity National Information Services, Inc., Term Loan B | 5.25 | % | 07/18/16 | 2,570,814 | 2,588,257 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Data Processing & Outsourced Services–(continued) | ||||||||||||||||
First Data Corp. | ||||||||||||||||
Term Loan B1(e) | — | % | 09/24/14 | $ | 341,207 | $ | 293,470 | |||||||||
Term Loan B1 | 3.01 | % | 09/24/14 | 5,008,321 | 4,307,632 | |||||||||||
Term Loan B2(e) | — | 09/24/14 | 511,810 | 437,731 | ||||||||||||
Term Loan B2 | 3.01 | % | 09/24/14 | 4,892,026 | 4,183,954 | |||||||||||
Term Loan B3(e) | — | 09/24/14 | 765,640 | 655,101 | ||||||||||||
Term Loan B3 | 3.01 | % | 09/24/14 | 3,410,168 | 2,917,825 | |||||||||||
Transunion Corp., Term Loan | 6.75 | % | 06/15/17 | 994,592 | 1,006,776 | |||||||||||
16,390,746 | ||||||||||||||||
Department Stores–0.20% | ||||||||||||||||
Bass Pro, Inc., Term Loan B | 5.00 – 5.75 | % | 04/10/15 | 1,375,682 | 1,379,128 | |||||||||||
Diversified Chemicals–0.88% | ||||||||||||||||
Celanese US Holdings LLC | ||||||||||||||||
Prefunded LOC | 0.31 | % | 04/02/14 | 490,939 | 469,821 | |||||||||||
Term Loan | 2.03 | % | 04/02/14 | 2,337,962 | 2,238,832 | |||||||||||
Rockwood Specialties, Inc., Term Loan H | 6.00 | % | 05/15/14 | 1,675,132 | 1,681,414 | |||||||||||
Solutia Inc., Term Loan B | 4.75 | % | 03/17/17 | 1,419,197 | 1,424,193 | |||||||||||
Texas Petrochemicals L.P. | ||||||||||||||||
Incremental Term Loan B | 2.88 – 3.13 | % | 06/27/13 | 54,644 | 51,468 | |||||||||||
Term Loan B | 2.88 – 3.13 | % | 06/27/13 | 161,894 | 152,485 | |||||||||||
6,018,213 | ||||||||||||||||
Diversified Metals & Mining–0.26% | ||||||||||||||||
Novelis Inc. | ||||||||||||||||
Canada Term Loan | 2.27 | % | 07/06/14 | 402,532 | 387,604 | |||||||||||
U.S. Term Loan | 2.27 – 2.54 | % | 07/06/14 | 1,427,863 | 1,374,125 | |||||||||||
1,761,729 | ||||||||||||||||
Diversified Real Estate Activities–1.36% | ||||||||||||||||
Lake Las Vegas Resort | ||||||||||||||||
Revolver Loan(d) | 0 | % | 12/31/12 | 107,236 | 106,164 | |||||||||||
Revolver Loan | 15.00 | % | 12/31/12 | 18,474 | 18,289 | |||||||||||
RE/MAX LLC, Term Loan B | 5.50 | % | 04/16/16 | 2,340,631 | 2,337,705 | |||||||||||
Realogy Corp., Delay Draw Term Loan | 3.30 – 3.53 | % | 10/10/13 | 7,893,360 | 6,809,996 | |||||||||||
9,272,154 | ||||||||||||||||
Diversified REIT’s–0.41% | ||||||||||||||||
Capital Automotive REIT | ||||||||||||||||
Term Loan B(e) | — | 12/16/10 | 106,326 | 104,422 | ||||||||||||
Term Loan B | 2.07 | % | 12/16/10 | 175,879 | 172,728 | |||||||||||
Term Loan C | 2.82 | % | 12/14/12 | 2,618,480 | 2,505,021 | |||||||||||
2,782,171 | ||||||||||||||||
Diversified Support Services–1.16% | ||||||||||||||||
Bankruptcy Management Solutions, Inc. | ||||||||||||||||
First Lien Term Loan | 4.27 | % | 07/28/12 | 59,856 | 38,258 | |||||||||||
Second Lien Term Loan | 6.64 | % | 07/28/13 | 35,292 | 7,588 | |||||||||||
Brock Holdings III, Inc., Term Loan B | 3.03 – 4.75 | % | 02/26/14 | 387,024 | 352,191 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Diversified Support Services–(continued) | ||||||||||||||||
Central Parking Corp. | ||||||||||||||||
Second Lien Term Loan | 5.06 | % | 11/22/14 | $ | 25,522 | $ | 19,695 | |||||||||
Syn LOC | 0.16 | % | 05/22/14 | 63,036 | 52,950 | |||||||||||
Term Loan B | 2.56 | % | 05/22/14 | 140,484 | 119,060 | |||||||||||
Merrill Corp., Term Loan | 8.50 | % | 05/15/11 | 3,994,578 | 3,774,876 | |||||||||||
Nuance Communications, Inc. | ||||||||||||||||
Incremental Term Loan | 2.02 | % | 03/29/13 | 1,989,744 | 1,917,118 | |||||||||||
Revolver Loan(d) | 0 | % | 04/01/12 | 121,000 | 109,505 | |||||||||||
Term Loan B | 2.02 | % | 04/01/13 | 244,238 | 235,324 | |||||||||||
Production Resources, Inc., Term Loan B | 3.81 | % | 08/15/14 | 1,512,100 | 1,262,603 | |||||||||||
7,889,168 | ||||||||||||||||
Drug Retail–1.16% | ||||||||||||||||
General Nutrition Centers, Inc., Term Loan B | 2.52 – 2.79 | % | 09/16/13 | 3,237,238 | 3,091,562 | |||||||||||
MAPCO Express, Inc., Term Loan | 6.75 | % | 04/28/11 | 60,209 | 58,854 | |||||||||||
Pantry, Inc. (The) | ||||||||||||||||
Delay Draw Term Loan | 2.02 | % | 05/15/14 | 21,046 | 20,204 | |||||||||||
Term Loan B | 2.02 | % | 05/15/14 | 73,529 | 70,588 | |||||||||||
Rite Aid Corp. | ||||||||||||||||
Term Loan(e) | — | 05/29/14 | 4,355,123 | 3,907,504 | ||||||||||||
Tranche 2 | 2.01 – 2.02 | % | 06/04/14 | 843,301 | 756,627 | |||||||||||
7,905,339 | ||||||||||||||||
Education Services–0.04% | ||||||||||||||||
Bright Horizons Family Solutions, Inc., Term Loan B | 7.50 | % | 05/28/15 | 244,755 | 245,368 | |||||||||||
Electric Utilities–6.16% | ||||||||||||||||
Bicent Power LLC, Second Lien Term Loan | 4.54 | % | 07/10/14 | 250,400 | 68,860 | |||||||||||
BRSP LLC, Term Loan B | 7.50 | % | 06/24/14 | 2,800,000 | 2,803,500 | |||||||||||
Calpine Corp. | ||||||||||||||||
First Priority Term Loan | 3.42 | % | 03/29/14 | 4,299,579 | 4,119,921 | |||||||||||
Revolver Loan(d) | 0 | % | 03/29/14 | 3,000,000 | 2,692,500 | |||||||||||
Term Loan B | 7.00 | % | 07/01/17 | 3,508,773 | 3,557,563 | |||||||||||
Dynegy Holdings Inc. | ||||||||||||||||
Loan C | 4.02 | % | 04/02/13 | 7,312,604 | 7,200,063 | |||||||||||
Term Loan B | 4.02 | % | 04/02/13 | 690,004 | 679,703 | |||||||||||
GreatPoint Energy, Delay Draw Term Loan | 5.50 | % | 03/10/17 | 654,027 | 650,757 | |||||||||||
Kelson Finance LLC, First Lien Term Loan B | 3.78 | % | 03/08/13 | 322,326 | 318,791 | |||||||||||
NE Energy, Inc. | ||||||||||||||||
Second Lien Term Loan | 5.06 | % | 05/01/14 | 315,000 | 284,287 | |||||||||||
Syn LOC | 0.41 | % | 11/01/13 | 9,235 | 8,696 | |||||||||||
Term Loan B | 3.06 | % | 11/01/13 | 517,939 | 486,863 | |||||||||||
NRG Energy, Inc. | ||||||||||||||||
Extended LOC 2(e) | — | 08/31/15 | 2,175,600 | 2,154,758 | ||||||||||||
Extended LOC 2 | 3.78 | % | 08/31/15 | 26,279 | 26,028 | |||||||||||
Syn LOC(e) | — | 02/01/13 | 304 | 297 | ||||||||||||
Syn LOC | 2.03 | % | 02/01/13 | 11 | 11 | |||||||||||
Term Loan B(e) | — | 02/01/13 | 209,767 | 204,865 | ||||||||||||
Term Loan B | 2.03 | % | 02/01/13 | 157,807 | 154,119 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Electric Utilities–(continued) | ||||||||||||||||
NSG Holdings II, LLC | ||||||||||||||||
Syn LOC | 2.04 | % | 06/15/14 | $ | 26,571 | $ | 25,398 | |||||||||
Term Loan | 2.04 | % | 06/15/14 | 87,931 | 84,047 | |||||||||||
Texas Competitive Electric Holdings Co. LLC | ||||||||||||||||
Delay Draw Term Loan(e) | — | 10/10/14 | 307,113 | 232,447 | ||||||||||||
Delay Draw Term Loan | 3.79 – 4.03 | % | 10/10/14 | 8,863,237 | 6,708,406 | |||||||||||
Term Loan B1(e) | — | 10/10/14 | 1,933,993 | 1,472,890 | ||||||||||||
Term Loan B1 | 3.79 – 4.03 | % | 10/10/14 | 245,473 | 186,948 | |||||||||||
Term Loan B2(e) | — | 10/10/14 | 2,451,036 | 1,864,822 | ||||||||||||
Term Loan B2 | 3.79 – 4.07 | % | 10/10/14 | 1,691,545 | 1,286,978 | |||||||||||
Term Loan B3(e) | — | 10/10/14 | 2,129,262 | 1,614,758 | ||||||||||||
Term Loan B3 | 3.79 – 4.03 | % | 10/10/14 | 3,315,094 | 2,514,052 | |||||||||||
TPF Generation Holdings, LLC | ||||||||||||||||
First Lien Term Loan | 0.43 | % | 12/15/11 | 30,618 | 28,847 | |||||||||||
Second Lien Term Loan | 4.78 | % | 12/15/14 | 267,000 | 243,138 | |||||||||||
Syn LOC D | 0.43 | % | 12/15/13 | 97,672 | 92,021 | |||||||||||
Term Loan | 2.53 | % | 12/15/13 | 243,945 | 229,831 | |||||||||||
41,996,165 | ||||||||||||||||
Electrical Components & Equipment–0.08% | ||||||||||||||||
Aeroflex Inc., Term Loan B1 | 3.63 | % | 08/15/14 | 313,710 | 296,586 | |||||||||||
Crown Castle International Corp., Term Loan B | 1.76 | % | 03/06/14 | 279,801 | 269,275 | |||||||||||
565,861 | ||||||||||||||||
Electronic Manufacturing Services–0.29% | ||||||||||||||||
Sorenson Communications, Inc., First Lien Term Loan | 6.00 | % | 08/16/13 | 2,217,690 | 1,988,835 | |||||||||||
Environmental & Facilities Services–0.03% | ||||||||||||||||
Covanta Holding Corp. | ||||||||||||||||
Syn LOC | 0.43 | % | 02/09/14 | 84,652 | 79,944 | |||||||||||
Term Loan B | 1.94 – 2.06 | % | 02/09/14 | 128,350 | 121,547 | |||||||||||
201,491 | ||||||||||||||||
Food Distributors–2.91% | ||||||||||||||||
Advanced Food Company, Inc. | ||||||||||||||||
Delay Draw Term Loan | 2.02 | % | 03/16/14 | 73,189 | 72,914 | |||||||||||
Second Lien Term Loan | 4.52 | % | 09/16/14 | 1,233,357 | 1,140,855 | |||||||||||
Term Loan B | 2.02 | % | 03/16/14 | 847,395 | 844,217 | |||||||||||
Aramark Corp. | ||||||||||||||||
Extended LOC 2(e) | — | 07/26/16 | 57,116 | 55,696 | ||||||||||||
Extended LOC 2 | 0.20 | % | 07/26/16 | 23,693 | 23,104 | |||||||||||
Extended Term Loan B(e) | — | 07/26/16 | 868,486 | 847,495 | ||||||||||||
Extended Term Loan B | 3.78 | % | 07/26/16 | 360,266 | 351,558 | |||||||||||
Syn LOC 1(e) | — | 01/26/14 | 66,298 | 63,148 | ||||||||||||
Syn LOC 1 | 0.20 | % | 01/26/14 | 13,153 | 12,528 | |||||||||||
U.S. Term Loan(e) | — | 01/26/14 | 1,008,100 | 956,561 | ||||||||||||
U.S. Term Loan | 2.41 | % | 01/26/14 | 181,637 | 172,351 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Food Distributors–(continued) | ||||||||||||||||
Dean Foods Co. | ||||||||||||||||
Term Loan A(e) | — | % | 04/02/12 | $ | 1,000,000 | $ | 974,845 | |||||||||
Term Loan A(e) | — | 04/02/14 | 3,000,000 | 2,932,500 | ||||||||||||
Term Loan A | 3.27 – 3.54 | % | 04/02/14 | 255,001 | 249,263 | |||||||||||
Term Loan B | 3.54 | % | 04/02/16 | 243,903 | 235,550 | |||||||||||
Term Loan B | 3.79 | % | 04/02/17 | 50,923 | 49,989 | |||||||||||
Pierre Foods Inc., Term Loan A | 7.00 | % | 03/03/16 | 2,150,674 | 2,150,340 | |||||||||||
Pinnacle Foods Group, Inc. (Aurora Foods) | ||||||||||||||||
Revolver Loan(d) | 0 | % | 04/02/13 | 1,000,000 | 910,000 | |||||||||||
Term Loan B(e) | — | 04/02/14 | 3,611,234 | 3,441,040 | ||||||||||||
Term Loan B | 2.81 | % | 04/02/14 | 1,990,397 | 1,896,615 | |||||||||||
Term Loan D | 6.00 | % | 04/02/14 | 2,471,415 | 2,482,005 | |||||||||||
19,862,574 | ||||||||||||||||
Food Retail–0.95% | ||||||||||||||||
OSI Restaurant Partners, LLC | ||||||||||||||||
Prefunded Revolver Credit | 2.69 | % | 06/14/13 | 13,759 | 12,218 | |||||||||||
Prefunded Revolver Credit Loan | 0.36 – 2.88 | % | 06/14/13 | 261,420 | 232,145 | |||||||||||
Term Loan | 2.88 | % | 06/14/14 | 4,033,502 | 3,582,879 | |||||||||||
Quizno’s Corp. (The), First Lien Term Loan B | 5.06 | % | 05/05/13 | 12,470 | 10,579 | |||||||||||
SUPERVALU Inc. | ||||||||||||||||
Term Loan A | 1.14 | % | 06/02/11 | 382,166 | 376,273 | |||||||||||
Term Loan B | 1.51 | % | 06/02/12 | 1,329,812 | 1,284,931 | |||||||||||
Term Loan C(e) | — | 06/02/11 | 352,941 | 337,941 | ||||||||||||
Wendy’s/Arby’s Resturants, LLC, Term Loan B | 5.00 | % | 05/24/17 | 640,717 | 643,761 | |||||||||||
6,480,727 | ||||||||||||||||
Forest Products–0.68% | ||||||||||||||||
Georgia-Pacific Corp. | ||||||||||||||||
Add On Term Loan B | 2.30 – 2.53 | % | 12/29/12 | 24,715 | 24,450 | |||||||||||
Term Loan A | 2.53 | % | 12/21/10 | 1,878,491 | 1,874,030 | |||||||||||
Term Loan B | 2.30 – 2.54 | % | 12/21/12 | 970,902 | 960,722 | |||||||||||
Term Loan C | 3.78 – 3.79 | % | 12/23/14 | 1,760,704 | 1,755,889 | |||||||||||
4,615,091 | ||||||||||||||||
General Merchandise Stores–0.10% | ||||||||||||||||
Pilot Travel Centers LLC, Term Loan B | 5.25 | % | 06/30/16 | 640,521 | 646,606 | |||||||||||
Health Care Distributors–1.03% | ||||||||||||||||
IMS Health, Inc., Term Loan | 5.25 | % | 02/26/16 | 2,203,944 | 2,212,208 | |||||||||||
Warner Chilcott PLC | ||||||||||||||||
Add On Term Loan | 6.25 | % | 04/30/15 | 1,784,698 | 1,787,411 | |||||||||||
Term Loan A | 6.00 | % | 10/30/14 | 409,732 | 407,650 | |||||||||||
Term Loan B1 | 6.25 | % | 04/30/15 | 193,060 | 193,336 | |||||||||||
Term Loan B2 | 6.25 | % | 04/30/15 | 321,481 | 321,955 | |||||||||||
Term Loan B3(e) | — | 01/18/16 | 1,571,404 | 1,580,024 | ||||||||||||
Term Loan B4(e) | — | 01/18/16 | 510,196 | 513,030 | ||||||||||||
7,015,614 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Health Care Equipment–1.25% | ||||||||||||||||
Biomet, Inc. | ||||||||||||||||
Term Loan(e) | — | % | 03/25/15 | $ | 554,461 | $ | 537,054 | |||||||||
Term Loan | 3.26 – 3.54 | % | 03/25/15 | 5,539,205 | 5,365,301 | |||||||||||
CONMED Corp., Term Loan | 1.77 | % | 04/13/13 | 897,614 | 843,757 | |||||||||||
DJO Finance LLC, Term Loan | 3.26 | % | 05/20/14 | 1,834,687 | 1,747,374 | |||||||||||
8,493,486 | ||||||||||||||||
Health Care Facilities–4.29% | ||||||||||||||||
Community Health Systems | ||||||||||||||||
Delay Draw Term Loan | 2.55 | % | 07/25/14 | 397,923 | 375,826 | |||||||||||
Term Loan B | 2.51 – 2.55 | % | 07/25/14 | 7,272,408 | 6,867,154 | |||||||||||
HCA, Inc. | ||||||||||||||||
Term Loan B(e) | — | 11/07/12 | 1,500,002 | 1,380,002 | ||||||||||||
Term Loan B | 2.78 | % | 11/18/13 | 265,503 | 256,034 | |||||||||||
Term Loan B2 | 3.78 | % | 03/31/17 | 8,053,547 | 7,802,759 | |||||||||||
Health Management Associates, Inc., Term Loan B | 2.28 | % | 02/28/14 | 3,945,135 | 3,697,952 | |||||||||||
IASIS Healthcare Corp. | ||||||||||||||||
Delay Draw Term Loan | 2.26 | % | 03/14/14 | 701,113 | 666,495 | |||||||||||
LOC | 0.16 | % | 03/14/14 | 381,558 | 362,719 | |||||||||||
Term Loan B | 2.26 | % | 03/14/14 | 2,025,751 | 1,924,099 | |||||||||||
Medical Properties Trust, Inc., Term Loan B | 5.00 | % | 05/17/16 | 1,337,710 | 1,324,333 | |||||||||||
Universal Health Services, Inc., Term Loan B(e) | — | 07/15/16 | 4,590,740 | 4,587,848 | ||||||||||||
29,245,221 | ||||||||||||||||
Health Care Services–2.01% | ||||||||||||||||
Aurora Diagnostics, LLC, Term Loan B | 6.25 | % | 05/26/16 | 1,762,322 | 1,731,482 | |||||||||||
Fresenius Medical Care Holdings, Inc. | ||||||||||||||||
Term Loan C1 | 4.50 | % | 09/10/14 | 223,895 | 225,102 | |||||||||||
Term Loan C2 | 4.50 | % | 09/10/14 | 127,895 | 128,584 | |||||||||||
Genoa Healthcare LLC | ||||||||||||||||
Second Lien Term Loan | 10.75 | % | 02/10/13 | 132,000 | 108,900 | |||||||||||
Term Loan B | 5.50 | % | 08/10/12 | 87,947 | 83,769 | |||||||||||
Gentiva Health Serviced, Inc., Term Loan B | 6.75 | % | 08/17/16 | 1,287,747 | 1,271,650 | |||||||||||
Harlan Sprague Dawley, Inc., Term Loan B | 3.77 | % | 07/11/14 | 2,608,372 | 2,373,619 | |||||||||||
Psychiatric Solutions, Inc. | ||||||||||||||||
Term Loan B(e) | — | 07/02/12 | 224,648 | 222,963 | ||||||||||||
Term Loan B | 2.06 – 2.28 | % | 07/02/12 | 4,464,204 | 4,430,722 | |||||||||||
Royalty Pharma AG, Term Loan B | 2.78 | % | 04/16/13 | 429,087 | 424,395 | |||||||||||
Skilled Healthcare LLC, Term Loan B | 5.25 | % | 04/09/16 | 997,393 | 933,061 | |||||||||||
Sun Healthcare Group, Inc. | ||||||||||||||||
Syn LOC | 0.43 | % | 04/19/14 | 57,746 | 56,323 | |||||||||||
Term Loan B | 3.53 – 3.70 | % | 04/19/14 | 116,250 | 113,385 | |||||||||||
Trizetto Group, Inc., Term Loan B | 7.50 | % | 08/04/15 | 727,767 | 725,947 | |||||||||||
United Surgical Partners International, Inc. | ||||||||||||||||
Delay Draw Term Loan | 2.27 | % | 04/18/14 | 171,957 | 162,285 | |||||||||||
Term Loan B | 2.27 – 2.50 | % | 04/18/14 | 752,620 | 708,091 | |||||||||||
13,700,278 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
17 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Health Care Supplies–0.74% | ||||||||||||||||
Bausch & Lomb Inc. | ||||||||||||||||
Delay Draw Term Loan | 3.51 | % | 04/26/15 | $ | 433,165 | $ | 415,973 | |||||||||
Revolver Loan(d) | 0 | % | 10/25/13 | 1,600,000 | 1,440,000 | |||||||||||
Revolver Loan | 3.01 | % | 10/25/13 | 400,000 | 360,000 | |||||||||||
Term Loan B | 3.51 – 3.78 | % | 04/26/15 | 1,786,689 | 1,715,971 | |||||||||||
Catalent Pharma Solutions, Term Loan | 2.51 | % | 04/10/14 | 1,238,430 | 1,120,011 | |||||||||||
5,051,955 | ||||||||||||||||
Hotels, Resorts & Cruise Lines–0.48% | ||||||||||||||||
American Gaming Systems | ||||||||||||||||
Delay Draw Term Loan | 3.27 | % | 05/14/13 | 503,117 | 378,178 | |||||||||||
Term Loan B | 3.27 | % | 05/14/13 | 3,596,052 | 2,703,044 | |||||||||||
Centaur Gaming | ||||||||||||||||
First Lien Term Loan B(f) | 11.25 | % | 10/30/12 | 242,281 | 188,979 | |||||||||||
Second Lien Term Loan(f) | 14.25 | % | 10/30/13 | 125,118 | 5,005 | |||||||||||
Ginn Club & Resort | ||||||||||||||||
First Lien Term Loan B(f) | 9.50 | % | 06/08/11 | 105,289 | 5,791 | |||||||||||
Revolving Credit Loan(f) | 5.87 – 9.50 | % | 06/08/11 | 49,078 | 2,699 | |||||||||||
Second Lien Term Loan(f) | 13.50 | % | 06/08/12 | 127,556 | 638 | |||||||||||
3,284,334 | ||||||||||||||||
Household Products–1.46% | ||||||||||||||||
Jarden Corp. | ||||||||||||||||
Term Loan B2 | 2.28 | % | 01/24/12 | 31,910 | 31,733 | |||||||||||
Term Loan B4 | 3.78 | % | 01/26/15 | 55,524 | 55,335 | |||||||||||
Nice-Pak Products Inc., Term Loan | 3.26 | % | 06/18/14 | 569,187 | 529,879 | |||||||||||
Rent-A-Center | ||||||||||||||||
Term Loan B | 2.02 – 2.05 | % | 06/30/12 | 7,077 | 7,060 | |||||||||||
Term Loan B | 3.54 | % | 03/31/15 | 125,976 | 126,291 | |||||||||||
Reynolds Packaging Group | ||||||||||||||||
Add On Term loan B | 5.75 | % | 05/05/16 | 1,460,070 | 1,456,420 | |||||||||||
Term Loan B | 6.25 | % | 11/05/15 | 2,012,242 | 2,009,093 | |||||||||||
Spectrum Brands, Inc., Term Loan | 8.00 | % | 06/16/16 | 5,639,561 | 5,709,632 | |||||||||||
9,925,443 | ||||||||||||||||
Human Resource & Employment Services–1.26% | ||||||||||||||||
Koosharem Corp. | ||||||||||||||||
First Lien Term Loan | 10.25 | % | 06/30/14 | 725,274 | 568,133 | |||||||||||
Second Lien Term Loan | 14.25 | % | 12/31/14 | 303,340 | 98,586 | |||||||||||
Term Loan(e) | — | 08/01/11 | 1,850,000 | 1,822,250 | ||||||||||||
Term Loan | 16.25 | % | 08/01/11 | 1,850,000 | 1,822,250 | |||||||||||
Kronos Inc. | ||||||||||||||||
First Lien Term Loan | 2.53 | % | 06/11/14 | 1,275,890 | 1,203,055 | |||||||||||
First Lien Term Loan | 6.28 | % | 06/11/15 | 3,255,649 | 3,048,101 | |||||||||||
8,562,375 | ||||||||||||||||
Industrial Conglomerates–0.82% | ||||||||||||||||
CONTECH Construction Products, Inc., Term Loan B | 2.27 | % | 01/31/13 | 1,297,066 | 1,090,346 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
18 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Industrial Conglomerates–(continued) | ||||||||||||||||
Dresser Inc. | ||||||||||||||||
Second Lien Term Loan | 6.11 | % | 05/04/15 | $ | 1,000,000 | $ | 963,440 | |||||||||
Term Loan B | 2.61 | % | 05/04/14 | 3,710,760 | 3,544,944 | |||||||||||
5,598,730 | ||||||||||||||||
Industrial Machinery–0.73% | ||||||||||||||||
Gleason Corp., First Lien Term Loan | 2.00 – 2.31 | % | 06/30/13 | 123,748 | 116,014 | |||||||||||
Itron Inc., Term Loan | 3.77 | % | 04/18/14 | 96,491 | 96,383 | |||||||||||
Pro Mach, Inc., Term Loan | 2.52 | % | 12/14/11 | 553,137 | 470,167 | |||||||||||
Rexnord Corp. | ||||||||||||||||
Add On Term Loan B2 | 2.56 | % | 07/19/13 | 93,888 | 89,282 | |||||||||||
Sr. Unsec. Term Loan | 7.54 | % | 03/01/13 | 2,742,275 | 2,229,812 | |||||||||||
Term Loan B | 2.81 | % | 07/19/13 | 2,082,062 | 1,998,135 | |||||||||||
4,999,793 | ||||||||||||||||
Insurance Brokers–0.30% | ||||||||||||||||
Sedgwick Claims Management Services, Inc., Term Loan B | 5.50 | % | 05/28/16 | 1,385,200 | 1,380,012 | |||||||||||
Swett & Crawford Group, Inc. | ||||||||||||||||
First Lien Term Loan | 2.51 | % | 04/03/14 | 373,983 | 300,589 | |||||||||||
Second Lien Term Loan | 5.76 | % | 10/03/14 | 105,200 | 68,906 | |||||||||||
USI Holdings Corp., Term Loan B | 3.29 | % | 05/05/14 | 316,091 | 290,127 | |||||||||||
2,039,634 | ||||||||||||||||
Integrated Telecommunication Services–0.95% | ||||||||||||||||
Cavalier Telephone Inc., Term Loan B | 10.50 | % | 12/31/12 | 877,706 | 835,137 | |||||||||||
Cincinnati Bell Inc. | ||||||||||||||||
Term Loan B(e) | — | 06/11/17 | 168,897 | 168,634 | ||||||||||||
Term Loan B | 6.50 | % | 06/11/17 | 1,084,566 | 1,082,874 | |||||||||||
Hargray Communications Group, Inc., Term Loan B | 2.67 | % | 06/27/14 | 149,026 | 144,804 | |||||||||||
Integra Telecom, Inc., Term Loan B | 9.25 | % | 04/15/15 | 1,883,819 | 1,886,174 | |||||||||||
Midcontinent Communications, Term Loan B | 6.25 | % | 12/31/16 | 1,264,197 | 1,264,456 | |||||||||||
Time Warner Inc., Term Loan B | 2.02 | % | 01/07/13 | 1,113,248 | 1,078,148 | |||||||||||
6,460,227 | ||||||||||||||||
Internet Retail–0.43% | ||||||||||||||||
CDW LLC | ||||||||||||||||
Term Loan B(e) | — | 10/10/14 | 1,168,432 | 1,049,690 | ||||||||||||
Term Loan B | 4.28 | % | 10/10/14 | 2,114,678 | 1,899,773 | |||||||||||
2,949,463 | ||||||||||||||||
Internet Software & Services–0.27% | ||||||||||||||||
Network Solutions, LLC, Term Loan B | 2.52 | % | 03/07/14 | 671,150 | 620,814 | |||||||||||
SAVVIS, Inc., Term Loan | 6.75 | % | 08/04/16 | 435,927 | 431,659 | |||||||||||
SkillSoft PLC, Term Loan B | 6.50 | % | 05/26/17 | 786,453 | 790,633 | |||||||||||
1,843,106 | ||||||||||||||||
Investment Banking & Brokerage–0.05% | ||||||||||||||||
Gartmore Investment Ltd., U.S. Term Loan | 2.26 | % | 05/11/14 | 357,741 | 321,073 | |||||||||||
IT Consulting & Other Services–1.76% | ||||||||||||||||
Brocade Communications Systems, Inc., Term Loan | 7.00 | % | 10/07/13 | 1,972,198 | 1,982,986 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
19 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
IT Consulting & Other Services–(continued) | ||||||||||||||||
SunGuard Data Systems, Inc. | ||||||||||||||||
U.S. Revolver Loan(d) | 0 | % | 08/11/11 | $ | 1,500,000 | $ | 1,432,501 | |||||||||
U.S. Term Loan A | 2.04 – 2.04 | % | 02/28/14 | 255,559 | 245,896 | |||||||||||
U.S. Term Loan B | 3.97 – 4.04 | % | 02/28/16 | 6,510,376 | 6,363,892 | |||||||||||
U.S. Term Loan C | 6.75 | % | 02/28/14 | 1,979,849 | 1,989,748 | |||||||||||
12,015,023 | ||||||||||||||||
Leisure Facilities–3.41% | ||||||||||||||||
24 Hour Fitness Worldwide Inc., Term Loan B | 6.75 | % | 04/22/16 | 2,765,705 | 2,588,520 | |||||||||||
AMF Group | ||||||||||||||||
First Lien Term Loan B | 2.76 – 2.79 | % | 06/08/13 | 1,345,772 | 1,169,140 | |||||||||||
Second Lien Term Loan | 6.54 | % | 12/08/13 | 177,143 | 145,257 | |||||||||||
Cedar Fair, L.P., Term Loan B | 5.50 | % | 12/15/16 | 915,869 | 920,971 | |||||||||||
Harrah’s Operating Co., Inc. | ||||||||||||||||
Term Loan B1(e) | — | 01/28/15 | 1,660,262 | 1,425,435 | ||||||||||||
Term Loan B1 | 3.50 | % | 01/28/15 | 3,124,315 | 2,682,412 | |||||||||||
Term Loan B2(e) | — | 01/28/15 | 3,000,003 | 2,581,719 | ||||||||||||
Term Loan B2 | 3.50 | % | 01/28/15 | 1,569,027 | 1,350,258 | |||||||||||
Term Loan B3 | 3.50 – 3.53 | % | 01/28/15 | 1,905,886 | 1,634,383 | |||||||||||
Live Nation Entertainment, Inc., Term Loan B | 4.50 | % | 11/06/16 | 882,548 | 871,516 | |||||||||||
Regal Entertainment Group, Term Loan B | 4.03 | % | 11/19/16 | 5,714,527 | 5,678,783 | |||||||||||
Six Flags Inc. | ||||||||||||||||
Second Lien Term Loan | 9.25 | % | 12/31/16 | 400,000 | 410,500 | |||||||||||
Term Loan B | 6.00 | % | 06/30/16 | 1,802,275 | 1,801,518 | |||||||||||
23,260,412 | ||||||||||||||||
Leisure Products–2.02% | ||||||||||||||||
Cinemark USA, Inc., Term Loan | 3.52 – 3.65 | % | 04/30/16 | 1,283,620 | 1,278,228 | |||||||||||
Golden Nugget, Inc., Second Lien Term Loan | 3.52 | % | 12/31/14 | 116,593 | 58,296 | |||||||||||
IMG Worldwide, Inc., Term Loan B | 7.25 | % | 06/14/15 | 4,049,016 | 3,952,852 | |||||||||||
Panavision Inc., Second Lien Term Loan | 8.03 | % | 03/30/12 | 9,500 | 5,320 | |||||||||||
Sabre Holdings Corp., Term Loan | 2.26 – 2.48 | % | 09/30/14 | 6,053,581 | 5,457,122 | |||||||||||
Travelport Ltd. | ||||||||||||||||
Delay Draw Term Loan | 2.76 – 3.03 | % | 08/23/13 | 600,352 | 572,211 | |||||||||||
U.S. Syn LOC | 3.03 | % | 08/23/13 | 230,515 | 219,670 | |||||||||||
U.S. Term Loan B | 2.76 | % | 08/23/13 | 1,269,485 | 1,209,580 | |||||||||||
True Temper Sports Inc., Term Loan | 8.00 | % | 10/14/13 | 1,021,393 | 979,899 | |||||||||||
13,733,178 | ||||||||||||||||
Marine–0.45% | ||||||||||||||||
Dockwise Ltd. | ||||||||||||||||
Term Loan B1(e) | — | 03/13/15 | 287,544 | 262,565 | ||||||||||||
Term Loan B2(e) | — | 03/13/15 | 1,217,816 | 1,112,025 | ||||||||||||
Term Loan C(e) | — | 03/13/16 | 266,663 | 244,663 | ||||||||||||
Term Loan C2(e) | — | 03/13/16 | 1,217,816 | 1,117,347 | ||||||||||||
US Shipping LLC, Term Loan | 2.50 – 9.20 | % | 08/07/13 | 466,692 | 332,080 | |||||||||||
3,068,680 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
20 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Marine Ports & Services–0.05% | ||||||||||||||||
Fleetcor Technologies, Inc. | ||||||||||||||||
Tranche 1 | 2.56 | % | 04/30/13 | $ | 185,935 | $ | 179,892 | |||||||||
Tranche 2 | 2.56 | % | 04/30/13 | 152,569 | 149,137 | |||||||||||
329,029 | ||||||||||||||||
Metal & Glass Containers–2.12% | ||||||||||||||||
Berry Plastics Corp. | ||||||||||||||||
Term Loan C(e) | — | 04/03/15 | 403,400 | 369,952 | ||||||||||||
Term Loan C | 2.32 – 2.38 | % | 04/03/15 | 6,863,203 | 6,294,141 | |||||||||||
Graham Packaging Company, L.P. | ||||||||||||||||
Term Loan B(e) | — | 10/07/11 | 4,500,000 | 4,491,045 | ||||||||||||
Term Loan B | 2.56 – 2.81 | % | 10/07/11 | 1,500,000 | 1,497,015 | |||||||||||
Term Loan C | 6.75 | % | 04/05/14 | 963,944 | 972,176 | |||||||||||
MAUSER Corp. | ||||||||||||||||
Term Loan B2 | 2.64 | % | 06/13/15 | 500,000 | 415,833 | |||||||||||
Term Loan C2 | 2.89 | % | 06/13/16 | 500,000 | 418,332 | |||||||||||
14,458,494 | ||||||||||||||||
Movies & Entertainment–1.10% | ||||||||||||||||
Alpha III, Term Loan B2 | 2.42 | % | 12/31/13 | 3,754,013 | 3,445,152 | |||||||||||
LodgeNet Entertainment Corp., Term Loan | 2.54 | % | 04/04/14 | 2,326,596 | 2,146,285 | |||||||||||
NEP II, Inc., Term Loan B | 2.30 – 4.25 | % | 02/16/14 | 390,495 | 370,603 | |||||||||||
Zuffa LLC, Term Loan | 2.31 | % | 06/19/15 | 1,653,155 | 1,566,959 | |||||||||||
7,528,999 | ||||||||||||||||
Oil & Gas Drilling–0.69% | ||||||||||||||||
Ram Energy Inc., Term Loan | 12.75 | % | 11/28/12 | 752,011 | 740,731 | |||||||||||
Venoco, Inc., Second Lien Term Loan | 4.31 | % | 05/07/14 | 4,282,579 | 3,964,962 | |||||||||||
4,705,693 | ||||||||||||||||
Oil & Gas Equipment & Services–0.63% | ||||||||||||||||
CCS Corp. | ||||||||||||||||
Delay Draw Term Loan | 3.26 | % | 11/14/14 | 964,349 | 820,902 | |||||||||||
Term Loan B | 3.26 | % | 11/14/14 | 2,753,512 | 2,343,927 | |||||||||||
Willbros Group, Inc., Term Loan B(e) | — | 04/30/14 | 1,159,195 | 1,107,031 | ||||||||||||
4,271,860 | ||||||||||||||||
Oil & Gas Refining & Marketing–0.80% | ||||||||||||||||
CITGO Petroleum Corp., Term Loan B | 8.00 | % | 06/24/15 | 1,234,107 | 1,216,861 | |||||||||||
Flying J Inc., Term Loan B | 12.00 | % | 07/23/15 | 1,395,349 | 1,419,767 | |||||||||||
Gary-Williams Energy Corp., Term Loan B | 11.75 | % | 11/13/14 | 962,543 | 904,791 | |||||||||||
Western Refining, Inc., Term Loan B | 10.75 | % | 05/30/14 | 1,981,511 | 1,897,911 | |||||||||||
5,439,330 | ||||||||||||||||
Oil & Gas Storage & Transportation–0.46% | ||||||||||||||||
Sem Group L.P., U.S. Term Loan B2 | 11.00 | % | 11/30/16 | 2,183,596 | 2,204,526 | |||||||||||
Targa Resources, Inc., Term Loan B | 5.75 | % | 07/05/16 | 960,371 | 961,744 | |||||||||||
3,166,270 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
21 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Other Diversified Financial Services–0.02% | ||||||||||||||||
Conseco, Inc., Term Loan | 7.50 | % | 10/10/13 | $ | 125,449 | $ | 123,306 | |||||||||
Packaged Foods & Meats–0.44% | ||||||||||||||||
Dole Foods Co., Inc. | ||||||||||||||||
Term Loan B1 | 5.00 – 5.50 | % | 03/02/17 | 694,905 | 697,897 | |||||||||||
Term Loan C1 | 5.00 – 5.50 | % | 03/02/17 | 1,655,532 | 1,662,659 | |||||||||||
Michael Foods Group, Term Loan B | 6.25 | % | 06/29/16 | 645,811 | 650,655 | |||||||||||
3,011,211 | ||||||||||||||||
Paper Packaging–1.18% | ||||||||||||||||
Smurfit-Stone Container Corp., Term Loan | 6.75 | % | 02/22/16 | 7,983,519 | 8,022,718 | |||||||||||
Paper Products–0.74% | ||||||||||||||||
Xerium S.A. | ||||||||||||||||
DIP Term Loan | 6.50 | % | 11/25/14 | 5,000,000 | 5,015,650 | |||||||||||
Second Lien Term Loan | 8.25 | % | 05/22/15 | 58,374 | 55,831 | |||||||||||
5,071,481 | ||||||||||||||||
Personal Products–0.55% | ||||||||||||||||
Hanesbrands Inc., First Lien Term Loan B | 5.25 | % | 12/10/15 | 2,163,894 | 2,183,932 | |||||||||||
Topps Company Inc. (The), Term Loan B | 3.05 | % | 10/12/14 | 1,714,644 | 1,573,186 | |||||||||||
3,757,118 | ||||||||||||||||
Pharmaceuticals–1.07% | ||||||||||||||||
Nycomed US Inc. | ||||||||||||||||
Term Loan A1 | 3.39 | % | 12/29/13 | 632,833 | 595,496 | |||||||||||
Term Loan A2 | 3.39 | % | 12/29/13 | 1,670,364 | 1,571,813 | |||||||||||
Term Loan A3 | 3.39 | % | 12/29/13 | 31,814 | 29,937 | |||||||||||
Term Loan A4 | 3.39 | % | 12/29/13 | 20,266 | 19,070 | |||||||||||
Term Loan A5 | 3.39 | % | 12/29/13 | 98,498 | 92,686 | |||||||||||
Term Loan B2 | 4.14 | % | 12/29/14 | 2,595,894 | 2,392,557 | |||||||||||
Term Loan C2 | 4.89 | % | 12/29/15 | 2,595,105 | 2,404,806 | |||||||||||
Quintiles Transnational Corp. | ||||||||||||||||
Second Lien Term Loan | 4.27 | % | 03/31/14 | 74,764 | 73,269 | |||||||||||
Term Loan B | 2.27 – 2.54 | % | 03/31/13 | 102,183 | 98,191 | |||||||||||
7,277,825 | ||||||||||||||||
Publishing–3.06% | ||||||||||||||||
American Media, Inc., Term Loan B | 10.00 | % | 01/30/13 | 3,921,368 | 3,842,941 | |||||||||||
Caribe Information Investment Inc., Term Loan | 2.67 – 2.79 | % | 03/31/13 | 70,518 | 54,211 | |||||||||||
Cengage Learning | ||||||||||||||||
Term Loan(e) | — | 07/03/14 | 1,447,847 | 1,287,325 | ||||||||||||
Term Loan | 3.03 | % | 07/03/14 | 2,272,156 | 2,020,261 | |||||||||||
Endurance Business Media, Inc. | ||||||||||||||||
Second Lien Term Loan(f) | 9.25 | % | 01/26/14 | 59,090 | 3,250 | |||||||||||
Term Loan(f) | 4.75 | % | 07/26/13 | 114,191 | 23,409 | |||||||||||
F & W Publications, Inc. | ||||||||||||||||
Second Lien Term Loan | 15.00 | % | 12/09/14 | 21,323 | 10,235 | |||||||||||
Term Loan | 7.75 | % | 06/09/14 | 52,775 | 42,220 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
22 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Publishing–(continued) | ||||||||||||||||
Gatehouse Media, Inc. | ||||||||||||||||
Delay Draw Term Loan | 2.27 | % | 08/28/14 | $ | 2,467,841 | $ | 976,167 | |||||||||
Term Loan | 2.52 | % | 08/28/14 | 1,057,441 | 418,276 | |||||||||||
Term Loan B | 2.27 | % | 08/28/14 | 4,138,287 | 1,639,217 | |||||||||||
Getty Images, Inc., Acquisition Term Loan | 6.25 | % | 07/02/15 | 8,031,338 | 8,082,940 | |||||||||||
Hanley Wood LLC, Term Loan | 2.56 – 2.63 | % | 03/08/14 | 321,750 | 147,467 | |||||||||||
Local Insight Regatta Holdings, Inc., Term Loan | 7.75 | % | 04/23/15 | 3,044,658 | 2,277,145 | |||||||||||
20,825,064 | ||||||||||||||||
Real Estate Management & Development–0.08% | ||||||||||||||||
CB Richard Ellis Group, Inc., Term Loan B1-A | 6.00 | % | 12/20/15 | 539,781 | 541,131 | |||||||||||
Semiconductors–0.65% | ||||||||||||||||
Freescale Semiconductor, Inc., Term Loan | 4.56 | % | 12/01/16 | 4,920,185 | 4,421,500 | |||||||||||
Specialized Consumer Services–3.41% | ||||||||||||||||
Booz Allen Hamilton, Inc. | ||||||||||||||||
Term Loan B | 7.50 | % | 07/31/15 | 1,453,647 | 1,458,422 | |||||||||||
Term Loan C | 6.00 | % | 07/31/15 | 2,096,208 | 2,099,918 | |||||||||||
Jacobson Corp., Term Loan B | 2.77 | % | 06/19/14 | 4,232,216 | 3,873,134 | |||||||||||
LPL Investment Holdings Inc. | ||||||||||||||||
Term Loan | 2.01 – 2.28 | % | 06/28/13 | 305,990 | 297,575 | |||||||||||
Term Loan | 5.25 | % | 06/28/17 | 4,556,539 | 4,556,539 | |||||||||||
ServiceMaster Company (The) | ||||||||||||||||
Delay Draw Term Loan(e) | — | 07/24/14 | 115,568 | 106,793 | ||||||||||||
Delay Draw Term Loan | 2.77 | % | 07/24/14 | 549,567 | 507,836 | |||||||||||
Syn LOC | 0.41 | % | 07/24/14 | 5,000,000 | 4,495,325 | |||||||||||
Term Loan B(e) | — | 07/24/14 | 1,160,499 | 1,072,307 | ||||||||||||
Term Loan B | 2.77 – 3.04 | % | 07/24/14 | 5,167,352 | 4,774,658 | |||||||||||
23,242,507 | ||||||||||||||||
Specialized Finance–1.00% | ||||||||||||||||
Citco Group Ltd. (The), Term Loan B | 4.75 | % | 06/30/14 | 96,235 | 91,424 | |||||||||||
Clarke American Corp., Term Loan B | 2.76 – 3.03 | % | 06/30/14 | 3,355,569 | 2,903,976 | |||||||||||
E.A.Viner International Co., First Lien Term Loan B | 5.04 | % | 07/31/13 | 23,979 | 23,019 | |||||||||||
MSCI Inc., Term Loan B | 4.75 | % | 06/01/16 | 520,778 | 523,301 | |||||||||||
Nuveen Investments, LLC, Term Loan | 3.48 – 3.53 | % | 11/13/14 | 3,654,186 | 3,241,190 | |||||||||||
6,782,910 | ||||||||||||||||
Specialty Chemicals–2.28% | ||||||||||||||||
Cognis Deutschland, Term Loan C | 2.54 | % | 09/15/13 | 799,515 | 789,122 | |||||||||||
Hexion Specialty Chemicals, Inc. | ||||||||||||||||
Credit Linked Deposit | 0.25 | % | 05/05/13 | 88,902 | 84,643 | |||||||||||
Revolver Loan(d) | 0 | % | 05/31/11 | 152,400 | 140,334 | |||||||||||
Revolver Loan | 2.81 | % | 05/31/11 | 228,600 | 210,502 | |||||||||||
Term Loan C5 | 4.31 | % | 05/05/15 | 3,104,888 | 2,934,119 | |||||||||||
Term Loan C7 | 4.31 | % | 05/05/15 | 4,202,848 | 3,950,677 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
23 Invesco Floating Rate Fund
Table of Contents
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Specialty Chemicals–(continued) | ||||||||||||||||
Huntsman ICI Chemicals LLC | ||||||||||||||||
Term Loan B(e) | — | % | 04/21/14 | $ | 1,023,620 | $ | 970,945 | |||||||||
Term Loan B | 1.90 – 1.98 | % | 04/21/14 | 2,890,134 | 2,741,408 | |||||||||||
Term Loan C(e) | — | 06/30/16 | 1,413,671 | 1,351,066 | ||||||||||||
Term Loan C | 2.51 – 2.65 | % | 06/30/16 | 2,314,856 | 2,212,342 | |||||||||||
MacDermid Inc., Term Loan B | 2.26 | % | 04/12/14 | 173,580 | 161,690 | |||||||||||
15,546,848 | ||||||||||||||||
Specialty Stores–1.13% | ||||||||||||||||
FTD, Inc., Term Loan B(e) | — | 08/26/14 | 521,332 | 522,636 | ||||||||||||
Mattress Firm, Term Loan B | 2.52 – 2.69 | % | 01/18/14 | 302,468 | 265,415 | |||||||||||
Michaels Stores, Inc. | ||||||||||||||||
Term Loan B1 | 2.63 – 2.81 | % | 10/31/13 | 2,625,903 | 2,490,852 | |||||||||||
Term Loan B2 | 4.88 – 5.06 | % | 07/31/16 | 3,963,624 | 3,842,655 | |||||||||||
PETCO Animal Supplies, Inc. | ||||||||||||||||
Term Loan | 2.51 | % | 10/26/13 | 330,078 | 318,054 | |||||||||||
Term Loan B | 2.78 | % | 10/26/13 | 263,711 | 254,104 | |||||||||||
7,693,716 | ||||||||||||||||
Systems Software–1.81% | ||||||||||||||||
Allen Systems Group Inc., First Lien Term Loan | 8.50 | % | 10/19/13 | 948,164 | 946,979 | |||||||||||
Dealer Comp-rey | ||||||||||||||||
Term Loan B(e) | — | 04/21/17 | 199,683 | 197,742 | ||||||||||||
Term Loan B | 5.25 | % | 04/21/17 | 5,596,632 | 5,542,233 | |||||||||||
Interactive Data Corp., Term Loan | 6.75 | % | 01/29/17 | 2,053,689 | 2,071,874 | |||||||||||
Verint Systems, Inc., Term Loan | 5.25 | % | 05/25/14 | 3,590,268 | 3,462,382 | |||||||||||
Vertafore, Inc., Term Loan B | 6.75 | % | 07/29/16 | 147,527 | 147,048 | |||||||||||
12,368,258 | ||||||||||||||||
Technology Distributors–0.07% | ||||||||||||||||
Windstream Corp., Term Loan B2 | 3.02 – 3.28 | % | 12/17/15 | 504,586 | 502,693 | |||||||||||
Textiles–0.07% | ||||||||||||||||
Gold ToeMoretz, LLC, First Lien Term Loan | 8.50 | % | 10/30/13 | 468,467 | 449,494 | |||||||||||
Trading Companies & Distributors–0.00% | ||||||||||||||||
Brenntag AG | ||||||||||||||||
Term Loan B2 | 4.02 – 4.06 | % | 01/20/14 | 16,346 | 16,367 | |||||||||||
U.S. Acquired Term Loan | 4.01 – 4.48 | % | 01/20/14 | 931 | 935 | |||||||||||
17,302 | ||||||||||||||||
Trucking–0.72% | ||||||||||||||||
Swift Transportation Corp. | ||||||||||||||||
Syn LOC | 8.25 | % | 05/10/14 | 2,500,000 | 2,395,825 | |||||||||||
Term Loan | 8.25 | % | 05/10/14 | 2,560,907 | 2,492,620 | |||||||||||
4,888,445 | ||||||||||||||||
Wireless Telecommunication Services–4.08% | ||||||||||||||||
Asurion Corp. | ||||||||||||||||
First Lien Term Loan | 3.26 – 3.40 | % | 07/03/14 | 4,764,702 | 4,571,419 | |||||||||||
Second Lien Term Loan | 6.79 | % | 07/03/15 | 3,072,549 | 2,991,894 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
24 Invesco Floating Rate Fund
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Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | Value | |||||||||||||
Wireless Telecommunication Services–(continued) | ||||||||||||||||
FairPoint Communications, Inc., Term Loan B(f) | 5.00 | % | 03/31/15 | $ | 3,922,715 | $ | 2,553,687 | |||||||||
Global Tel*Link, Term Loan | 6.00 – 6.25 | % | 03/02/16 | 1,791,240 | 1,792,082 | |||||||||||
MetroPCS Communications, Inc. | ||||||||||||||||
Term Loan B(e) | — | 11/03/13 | 207,962 | 203,543 | ||||||||||||
Term Loan B | 2.63 | % | 11/03/13 | 398,689 | 390,217 | |||||||||||
Term Loan B2(e) | — | 11/03/16 | 639,439 | 631,440 | ||||||||||||
Term Loan B2 | 3.81 | % | 11/03/16 | 4,343,543 | 4,289,205 | |||||||||||
RCN Corp., Term Loan B(e) | — | 05/24/16 | 6,024,563 | 5,996,307 | ||||||||||||
Securus Technologies, Inc., Term Loan B | 8.00 | % | 10/31/14 | 3,990,000 | 4,009,950 | |||||||||||
U.S. TelePacific, Term Loan B | 9.25 | % | 08/17/15 | 404,625 | 406,143 | |||||||||||
27,835,887 | ||||||||||||||||
Total Senior Secured Floating Rate Interest Loans (Cost $651,968,076) | 644,962,753 | |||||||||||||||
Shares | ||||||||||||||||
Domestic Common Stocks & Other Equity Interests–2.22% | ||||||||||||||||
Aerospace & Defense–0.04% | ||||||||||||||||
ACTS Aero Technical Support & Services, Inc.(g) | 15,079 | 263,889 | ||||||||||||||
Auto Parts & Equipment–0.02% | ||||||||||||||||
Dayco Products, LLC(g) | 4,117 | 163,309 | ||||||||||||||
Broadcasting–0.02% | ||||||||||||||||
Citadel Broadcasting Corp.–Class B(g) | 1 | 24 | ||||||||||||||
New Vision Television(g) | 6,734 | 0 | ||||||||||||||
New Vision Television–Class A(g) | 8,574 | 128,610 | ||||||||||||||
128,634 | ||||||||||||||||
Building Products–0.30% | ||||||||||||||||
Masonite Worldwide Holdings (Canada)(g) | 53,093 | 2,017,534 | ||||||||||||||
United Subcontractors, Inc.(g) | 4,587 | 0 | ||||||||||||||
2,017,534 | ||||||||||||||||
Commodity Chemicals–1.58% | ||||||||||||||||
LyondellBasell Industries–Class A(g) | 273,591 | 5,608,615 | ||||||||||||||
LyondellBasell Industries–Class B(g) | 250,755 | 5,137,970 | ||||||||||||||
10,746,585 | ||||||||||||||||
Diversified Real Estate Activities–0.03% | ||||||||||||||||
Lake Las Vegas Resort–Class A(g) | 518 | 209,976 | ||||||||||||||
Lake Las Vegas Resort–Class B(g) | 4 | 1,674 | ||||||||||||||
Lake Las Vegas Resort–Wts. C, expiring 07/15/15(g) | 17 | 0 | ||||||||||||||
Lake Las Vegas Resort–Wts. D, expiring 07/15/15(g) | 24 | 0 | ||||||||||||||
Lake Las Vegas Resort–Wts. E, expiring 07/15/15(g) | 27 | 0 | ||||||||||||||
Lake Las Vegas Resort–Wts. F, expiring 07/15/15(g) | 30 | 0 | ||||||||||||||
Lake Las Vegas Resort–Wts. G, expiring 07/15/15(g) | 34 | 0 | ||||||||||||||
211,650 | ||||||||||||||||
Environmental & Facilities Services–0.14% | ||||||||||||||||
Safety-Kleen Holdco, Inc., (Acquired 12/24/03; Cost $2,062,077)(g)(h)(i) | 150,812 | 923,723 | ||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
25 Invesco Floating Rate Fund
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Shares | Value | |||||||||||||||
Industrial Machinery–0.00% | ||||||||||||||||
Xerium Technologies, Inc.(g) | 1,766 | $ | 17,766 | |||||||||||||
Leisure Products–0.00% | ||||||||||||||||
True Temper Sports Inc.(g) | 2,971 | 10,400 | ||||||||||||||
Marine–0.01% | ||||||||||||||||
US Shipping LLC(g) | 93,994 | 70,244 | ||||||||||||||
Oil & Gas Storage & Transportation–0.02% | ||||||||||||||||
Sem Group L.P.(g) | 6,668 | 157,532 | ||||||||||||||
Publishing–0.06% | ||||||||||||||||
F&W Publications, Inc.(g) | 288 | 0 | ||||||||||||||
F&W Publications, Inc.–Wts., expiring 12/09/17(g) | 496 | 0 | ||||||||||||||
MediaNews Group, Inc.(g) | 1 | 16 | ||||||||||||||
Reader’s Digest Association, Inc. (The)(g) | 22,917 | 441,152 | ||||||||||||||
441,168 | ||||||||||||||||
Total Domestic Common Stocks & Other Equity Interests (Cost $22,412,265) | 15,152,434 | |||||||||||||||
Interest | Maturity | Principal | ||||||||||||||
Rate | Date | Amount | ||||||||||||||
Bonds & Notes–1.77% | ||||||||||||||||
Airlines–0.07% | ||||||||||||||||
Continental Airlines, Inc., Sr. Sec. Gtd. Notes(h) | 6.75 | % | 09/15/15 | $ | 460,000 | 458,850 | ||||||||||
Commodity Chemicals–0.54% | ||||||||||||||||
Lyondell Chemical Co., Sr. Sec. Gtd. Notes | 11.00 | % | 05/01/18 | 3,385,932 | 3,690,666 | |||||||||||
Communications Equipment–0.64% | ||||||||||||||||
Qwest Corp., Sr. Unsec. Floating Rate Global Notes(j) | 3.79 | % | 06/15/13 | 4,250,000 | 4,366,875 | |||||||||||
Metal & Glass Containers–0.12% | ||||||||||||||||
Berry Plastics Holding Corp., Sec. Gtd. Floating Rate Global Notes(j) | 4.41 | % | 09/15/14 | 996,000 | 841,620 | |||||||||||
Oil & Gas Refining & Marketing–0.37% | ||||||||||||||||
Western Refining, Inc., Sr. Sec. Gtd. Floating Rate Notes(h)(j) | 10.75 | % | 06/15/14 | 2,750,000 | 2,516,250 | |||||||||||
Paper Products–0.03% | ||||||||||||||||
Verso Paper Holdings, LLC, Series B, Sr. Sec. Gtd. Floating Rate Global Notes(j) | 4.22 | % | 08/01/14 | 228,000 | 196,080 | |||||||||||
Total Bonds & Notes (Cost $11,706,099) | �� | 12,070,341 | ||||||||||||||
Shares | ||||||||||||||||
Money Market Funds–8.61% | ||||||||||||||||
Liquid Assets Portfolio–Institutional Class(k) | 29,336,483 | 29,336,483 | ||||||||||||||
Premier Portfolio–Institutional Class(k) | 29,336,483 | 29,336,483 | ||||||||||||||
Total Money Market Funds (Cost $58,672,966) | 58,672,966 | |||||||||||||||
TOTAL INVESTMENTS–107.23% (Cost $744,759,406) | 730,858,494 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–(7.23)% | (49,278,089 | ) | ||||||||||||||
NET ASSETS–100.00% | $ | 681,580,405 | ||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
26 Invesco Floating Rate Fund
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Investment Abbreviations:
DIP | – Debtor-in-possession | |
Gtd. | – Guaranteed | |
LOC | – Letter of Credit | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Syn LOC | – Synthetic Letter of Credit | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated | |
Wts. | – Warrants |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Senior secured corporate loans and senior secured debt securities are, at present, not readily marketable, not registered under the Securities Act of 1933, as amended and may be subject to contractual and legal restrictions on sale. Senior secured corporate loans and senior secured debt securities in the Fund’s portfolio generally have variable rates which adjust to a base, such as the London Inter-Bank Offered Rate (“LIBOR”), on set dates, typically every 30 days but not greater than one year; and/or have interest rates that float at a margin above a widely recognized base lending rate such as the Prime Rate of a designated U.S. bank. | |
(c) | Senior secured floating rate interests often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. However, it is anticipated that the senior secured floating rate interests will have a expected average life of three to five years. | |
(d) | All or a portion of this holding is subject to unfunded loan commitments. See Note 7. | |
(e) | This floating rate interest will settle after August 31, 2010, at which time the interest rate will be determined. | |
(f) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at August 31, 2010 was $3,539,774, which represented 0.52% of the Fund’s Net Assets(g) Non-income producing security. | |
(h) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at August 31, 2010 was $3,898,823, which represented 0.57% of the Fund’s Net Assets. | |
(i) | Acquired as part of a bankruptcy restructuring. | |
(j) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on August 31, 2010. | |
(k) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
27 Invesco Floating Rate Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $686,086,440) | $ | 672,185,528 | ||
Investments in affiliated money market funds, at value and cost | 58,672,966 | |||
Total investments, at value (Cost $744,759,406) | 730,858,494 | |||
Receivables for: | ||||
Investments sold | 73,005,486 | |||
Investments matured | 459,419 | |||
Fund shares sold | 4,511,892 | |||
Dividends and interest | 2,745,515 | |||
Investment for trustee deferred compensation and retirement plans | 17,979 | |||
Other assets | 61,581 | |||
Total assets | 811,660,366 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 126,681,478 | |||
Fund shares reacquired | 1,921,306 | |||
Amount due custodian | 37,497 | |||
Dividends | 879,164 | |||
Accrued fees to affiliates | 305,679 | |||
Accrued other operating expenses | 207,985 | |||
Trustee deferred compensation and retirement plans | 46,852 | |||
Total liabilities | 130,079,961 | |||
Net assets applicable to shares outstanding | $ | 681,580,405 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 733,700,897 | ||
Undistributed net investment income | 185,047 | |||
Undistributed net realized gain (loss) | (38,404,627 | ) | ||
Unrealized appreciation (depreciation) | (13,900,912 | ) | ||
$ | 681,580,405 | |||
Net Assets: | ||||
Class A | $ | 359,475,622 | ||
Class C | $ | 189,966,196 | ||
Class R | $ | 1,079,796 | ||
Class Y | $ | 93,478,638 | ||
Institutional Class | $ | 37,580,153 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 48,102,110 | |||
Class C | 25,532,631 | |||
Class R | 144,176 | |||
Class Y | 12,528,787 | |||
Institutional Class | 5,027,951 | |||
Class A: | ||||
Net asset value per share | $ | 7.47 | ||
Maximum offering price per share | ||||
(Net asset value of $7.47 divided by 97.50%) | $ | 7.66 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 7.44 | ||
Class R: | ||||
Net asset value and offering price per share | $ | 7.49 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 7.46 | ||
Institutional Class: | ||||
Net asset value and offering price per share | $ | 7.47 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
28 Invesco Floating Rate Fund
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Interest | $ | 33,865,577 | ||
Dividends from affiliated money market funds | 70,653 | |||
Total investment income | 33,936,230 | |||
Expenses: | ||||
Advisory fees | 3,400,237 | |||
Administrative services fees | 160,759 | |||
Custodian fees | 32,642 | |||
Distribution fees: | ||||
Class A | 751,483 | |||
Class C | 1,093,528 | |||
Class R | 3,544 | |||
Transfer agent fees — A, C, R and Y | 445,485 | |||
Transfer agent fees — Institutional | 4,389 | |||
Trustees’ and officers’ fees and benefits | 30,901 | |||
Other | 562,233 | |||
Total expenses | 6,485,201 | |||
Less: Fees waived, expenses reimbursed and expense offset arrangement(s) | (86,605 | ) | ||
Net expenses | 6,398,596 | |||
Net investment income | 27,537,634 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 9,257,683 | |||
Foreign currencies | (6 | ) | ||
9,257,677 | ||||
Change in net unrealized appreciation of investment securities | 10,038,366 | |||
Net realized and unrealized gain | 19,296,043 | |||
Net increase in net assets resulting from operations | $ | 46,833,677 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
29 Invesco Floating Rate Fund
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Statement of Changes in Net Assets
For the years ended August 31, 2010 and 2009
August 31, | August 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 27,537,634 | $ | 15,872,914 | ||||
Net realized gain (loss) | 9,257,677 | (13,290,805 | ) | |||||
Change in net unrealized appreciation | 10,038,366 | 6,213,894 | ||||||
Net increase in net assets resulting from operations | 46,833,677 | 8,796,003 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Class A | (16,089,153 | ) | (9,200,242 | ) | ||||
Class C | (7,057,402 | ) | (3,733,419 | ) | ||||
Class R | (35,865 | ) | (20,258 | ) | ||||
Class Y | (2,187,865 | ) | (334,392 | ) | ||||
Institutional Class | (2,198,237 | ) | (2,509,144 | ) | ||||
Total distributions from net investment income | (27,568,522 | ) | (15,797,455 | ) | ||||
Share transactions–net: | ||||||||
Class A | 129,615,443 | 77,804,579 | ||||||
Class C | 80,508,401 | 37,224,086 | ||||||
Class R | 634,904 | 128,603 | ||||||
Class Y | 72,830,983 | 18,275,977 | ||||||
Institutional Class | (3,020,369 | ) | (6,056,700 | ) | ||||
Net increase in net assets resulting from share transactions | 280,569,362 | 127,376,545 | ||||||
Net increase in net assets | 299,834,517 | 120,375,093 | ||||||
Net assets: | ||||||||
Beginning of year | 381,745,888 | 261,370,795 | ||||||
End of year (includes undistributed net investment income of $185,047 and $209,754, respectively) | $ | 681,580,405 | $ | 381,745,888 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Cash Flows
For the year ended August 31, 2010
Cash provided by operating activities: | ||||
Net increase in net assets resulting from operations | $ | 46,833,677 | ||
Adjustments to reconcile net increase in net assets to net cash provided by (used in) operating activities: | ||||
Purchases of investments | (730,449,133 | ) | ||
Proceeds from disposition of investments and principal payments | 493,049,572 | |||
Increase in receivables and other assets | (1,662,032 | ) | ||
Amortization of premiums and accretion of discounts on investment securities | (10,942,217 | ) | ||
Increase in accrued expenses and other payables | 207,873 | |||
Unrealized appreciation on investment securities | (10,038,366 | ) | ||
Net realized gain from investment securities | (9,257,683 | ) | ||
Net cash provided by (used in) operating activities | (222,258,309 | ) | ||
Cash provided by financing activities: | ||||
Dividends paid to shareholders | (6,164,843 | ) | ||
Proceeds from shares of beneficial interest sold | 505,950,052 | |||
Increase/Decrease in payable for amount due custodian | 37,497 | |||
Disbursements from shares of beneficial interest reacquired | (248,008,693 | ) | ||
Net cash provided by financing activities | 251,814,013 | |||
Net increase in cash and cash equivalents | 29,555,704 | |||
Cash and cash equivalents at beginning of period | 29,117,262 | |||
Cash and cash equivalents at end of period | $ | 58,672,966 | ||
Non-cash financing activities: | ||||
Value of shares of beneficial interest issued in reinvestment of dividends paid to shareholders | $ | 20,939,008 | ||
Supplemental disclosure of cash flow information: | ||||
Cash paid during the year for line of credit expenses was $79,326. |
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Floating Rate Fund, formerly AIM Floating Rate Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
The Fund’s investment objectives are to provide a high level of current income and, secondarily, preservation of capital.
The Fund currently consists of five different classes of shares: Class A, Class C, Class R, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class C shares are sold with a CDSC. Class R, Class Y and Institutional Class shares are sold at net asset value.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Senior secured floating rate loans and senior secured floating rate debt securities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institution-size trading in similar groups of securities and other market data. | |
Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market (but not securities reported on the NASDAQ Stock Exchange) are valued based on the prices furnished by independent pricing services, in which case the securities |
31 Invesco Floating Rate Fund
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may be considered fair valued, or by market makers. Each security reported on the NASDAQ Stock Exchange is valued at the NASDAQ Official Closing Price (“NOCP”) as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. | ||
Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Change in Valuation Methodology of Corporate Loans — Effective January 1, 2010, a change in pricing valuation methodology was implemented for Corporate Loans from bid quotation to the mean or otherwise calculated at the mid price between the bid and asked quotation. The change was implemented to align pricing methodologies among all debt instruments. The impact of this valuation policy change was an increase of $3,164,818 to investments at value, unrealized appreciation and net assets and approximately $0.06 per share to the Fund. | |
C. | Securities Transactions and Investment Income — Securities transaction are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from the settlement date. Facility fees received may be amortized over the life of the loan. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. | ||
D. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the |
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laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | ||
E. | Distributions — Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
F. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
G. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
H. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
I. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
J. | Other Risks — The Fund may invest all or substantially of its assets in senior secured floating rate loans, senior secured debt securities or other securities rated below investment grade. These securities are generally considered to have speculative characteristics and are subject to greater risk of loss of principal and interest than higher rated securities. The value of lower quality debt securities and floating rate loans can be more volatile due to increased sensitivity to adverse issuer, political, regulatory, market or economic developments. | |
The Fund invests in Corporate Loans from U.S. or non-U.S. companies (the “Borrowers”). The investment of the Fund in a Corporate Loan may take the form of participation interests or assignments. If the Fund purchases a participation interest from a syndicate of lenders (“Lenders”) or one of the participants in the syndicate (“Participant”), one or more of which administers the loan on behalf of all the Lenders (the “Agent Bank”), the Fund would be required to rely on the Lender that sold the participation interest not only for the enforcement of the Fund’s rights against the Borrower but also for the receipt and processing of payments due to the Fund under the Corporate Loans. As such, the Fund is subject to the credit risk of the Borrower and the Participant. Lenders and Participants interposed between the Fund and a Borrower, together with Agent Banks, are referred to as “Intermediate Participants”. | ||
K. | Redemption Fees — The Fund has a 2% redemption fee that is to be retained by the Fund to offset transaction costs and other expenses associated with short-term redemptions and exchanges. The fee, subject to certain exceptions, is imposed on certain redemptions or exchanges of shares within 31 days of purchase. The redemption fee is recorded as an increase in shareholder capital and is allocated among the share classes based on the relative net assets of each class. | |
L. | Cash and Cash Equivalents — For the purposes of the Statement of Cash Flows the Fund defines Cash and Cash Equivalents as cash (including foreign currency), money market funds and other investments held in lieu of cash and excludes investments made with cash collateral received. | |
M. | Securities Purchased on a When-Issued and Delayed Delivery Basis — The Fund may purchase and sell interests in Corporate Loans and Corporate Debt Securities and other portfolio securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Fund actually takes delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities prior to the settlement date. | |
N. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and |
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(3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | ||
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .65% | ||
Next $4.5 billion | 0 | .60% | ||
Next $5 billion | 0 | .575% | ||
Over $10 billion | 0 | .55% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least December 31, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit Total Annual Operating Expenses After Fee Waiver (excluding certain items discussed below) of Class A, Class C, Class R, Class Y and Institutional Class shares to 1.50%, 2.00%, 1.75%, 1.25% and 1.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Operating Expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on December 31, 2011. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended August 31, 2010, the Adviser waived advisory fees of $84,536.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended August 31, 2010, Invesco Ltd. reimbursed expenses of the Fund in the amount of $272.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class C, Class R, Class Y and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class C and Class R shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares, 0.75% of the average daily net assets of Class C shares and 0.50% of the average daily net assets of Class R shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended August 31, 2010, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended August 31, 2010, IDI advised the Fund that IDI retained $94,481 in front-end sales commissions from the sale of Class A shares and $6,165 and $54,724 from Class A and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
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Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 71,454,875 | $ | 1,366,158 | $ | 1,004,367 | $ | 73,825,400 | ||||||||
Corporate Debt Securities | — | 653,961,155 | 3,071,939 | 657,033,094 | ||||||||||||
$ | 71,454,875 | $ | 655,327,313 | $ | 4,076,306 | $ | 730,858,494 | |||||||||
NOTE 4—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions. For the year ended August 31, 2010, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $1,797.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended August 31, 2010, the Fund paid legal fees of $3,889 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Borrowings
The Fund is a party to a committed line of credit facility with a syndicate administered by JPMorgan Chase Bank. The Fund may borrow up to the lesser of (1) $10,000,000, or (2) the limits set by its prospectus for borrowings. The Fund is charged a commitment fee of 0.15% on the unused balance of the committed line and an up front fee 0.03% on the aggregate commitment. Prior to October 26, 2009, the commitment fee was 0.07%.
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
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NOTE 7—Unfunded Loan Commitments
As of August 31, 2010, the Fund had unfunded loan commitments of $9,935,553, which could be extended at the option of the borrower, pursuant to the following loan agreements with the following borrowers:
Unfunded | ||||||
Borrower | Commitments | |||||
Aero Technology Supply | Revolver Loan | $ | 4,539 | |||
Bausch & Lomb Inc. | Revolver Loan | 1,440,000 | ||||
Calpine Corp. | Revolver Loan | 2,692,500 | ||||
Delta Air Lines, Inc. | Revolver Loan | 1,821,260 | ||||
Delta Air Lines, Inc. | Revolver Loan | 1,278,750 | ||||
Hexion Specialty Chemicals, Inc. | Revolver Loan | 140,334 | ||||
Lake Las Vegas Resort | Revolver Loan | 106,164 | ||||
Nuance Communications, Inc. | Revolver Loan | 109,505 | ||||
Pinnacle Foods Group, Inc. (Aurora Foods) | Revolver Loan | 910,000 | ||||
SunGuard Data Systems, Inc. | U.S. Revolver Loan | 1,432,501 | ||||
$ | 9,935,553 | |||||
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 27,568,522 | $ | 15,797,455 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 203,904 | ||
Net unrealized appreciation (depreciation) — investments | (16,082,895 | ) | ||
Temporary book/tax differences | (48,073 | ) | ||
Capital loss carryforward | (36,193,428 | ) | ||
Shares of beneficial interest | 733,700,897 | |||
Total net assets | $ | 681,580,405 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $2,939,644 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2011 | $ | 10,298,295 | ||
August 31, 2012 | 2,745,717 | |||
August 31, 2013 | 5,482,284 | |||
August 31, 2014 | 2,498,917 | |||
August 31, 2016 | 1,685,685 | |||
August 31, 2017 | 13,482,530 | |||
Total capital loss carryforward | $ | 36,193,428 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
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NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $822,299,256 and $544,800,793, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 13,428,554 | ||
Aggregate unrealized (depreciation) of investment securities | (29,511,449 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (16,082,895 | ) | |
Cost of investments for tax purposes is $746,941,389. |
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward on August 31, 2010, undistributed net investment income was increased by $6,181, undistributed net realized gain (loss) was increased by $18,337,222 and shares of beneficial interest decreased by $18,343,403. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended August 31, | ||||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 38,559,170 | $ | 287,610,728 | 22,788,600 | $ | 140,448,419 | ||||||||||
Class C | 15,356,905 | 113,997,965 | 9,058,544 | 56,396,083 | ||||||||||||
Class R | 89,309 | 674,242 | 23,993 | 160,476 | ||||||||||||
Class Y(b) | 13,290,665 | 99,476,271 | 3,086,832 | 19,854,491 | ||||||||||||
Institutional Class | 950,425 | 7,085,241 | 779,815 | 4,913,124 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | 1,644,780 | 12,202,545 | 1,023,849 | 6,419,451 | ||||||||||||
Class C | 669,964 | 4,944,909 | 398,007 | 2,493,435 | ||||||||||||
Class R | 4,552 | 33,848 | 3,234 | 20,088 | ||||||||||||
Class Y | 212,445 | 1,578,879 | 22,822 | 151,664 | ||||||||||||
Institutional Class | 294,492 | 2,178,827 | 403,283 | 2,501,384 | ||||||||||||
Reacquired:(c) | ||||||||||||||||
Class A(b) | (22,928,890 | ) | (170,197,830 | ) | (10,735,224 | ) | (69,063,291 | ) | ||||||||
Class C | (5,231,659 | ) | (38,434,473 | ) | (3,310,738 | ) | (21,665,432 | ) | ||||||||
Class R | (9,775 | ) | (73,186 | ) | (8,333 | ) | (51,961 | ) | ||||||||
Class Y | (3,826,963 | ) | (28,224,167 | ) | (257,014 | ) | (1,730,178 | ) | ||||||||
Institutional Class | (1,679,345 | ) | (12,284,437 | ) | (2,076,229 | ) | (13,471,208 | ) | ||||||||
Net increase in share activity | 37,396,075 | $ | 280,569,362 | 21,201,441 | $ | 127,376,545 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 61% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
In addition, 5% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual funds that are also advised by Invesco. | ||
(b) | Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A into Class Y shares of the Fund: |
Class | Shares | Amount | ||||||
Class Y | 34,580 | $ | 252,087 | |||||
Class A | (34,580 | ) | (252,087 | ) | ||||
(c) | Net of redemption fees of $51,484 and $27,580 allocated among the classes based on relative net assets of each class for the years ended August 31, 2010 and 2009, respectively. |
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NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | (loss) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | (both realized | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income | and unrealized) | operations | income | of period(a) | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | $ | 7.09 | $ | 0.40 | (d) | $ | 0.39 | (e) | $ | 0.79 | $ | (0.41 | ) | $ | 7.47 | 11.28 | %(e) | $ | 359,476 | 1.12 | %(f)(g) | 1.14 | %(f)(g) | 5.34 | %(f) | 106 | % | |||||||||||||||||||||
Year ended 08/31/09 | 7.99 | 0.41 | (d) | (0.89 | ) | (0.48 | ) | (0.42 | ) | 7.09 | (4.97 | ) | 218,448 | 1.24 | (g) | 1.25 | (g) | 6.50 | 52 | |||||||||||||||||||||||||||||
Year ended 08/31/08 | 8.67 | 0.53 | (d) | (0.68 | ) | (0.15 | ) | (0.53 | ) | 7.99 | (1.80 | ) | 141,803 | 1.36 | (g) | 1.37 | (g) | 6.36 | 66 | |||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.06 | 0.60 | (d) | (0.39 | ) | 0.21 | (0.60 | ) | 8.67 | 2.28 | 220,449 | 1.29 | (g) | 1.30 | (g) | 6.65 | 117 | |||||||||||||||||||||||||||||||
Eight months ended 08/31/06 | 9.04 | 0.37 | (d) | 0.02 | 0.39 | (0.37 | ) | 9.06 | 4.32 | 155,953 | 1.58 | (g)(h) | 1.86 | (g)(h) | 6.06 | (g)(h) | 54 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 9.02 | 0.43 | 0.01 | 0.44 | (0.42 | ) | 9.04 | 5.00 | 159,206 | 2.04 | (g) | 2.17 | (g) | 4.69 | 56 | |||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.06 | 0.36 | (d) | 0.39 | (e) | 0.75 | (0.37 | ) | 7.44 | 10.75 | (e) | 189,966 | 1.62 | (f)(g) | 1.64 | (f)(g) | 4.84 | (f) | 106 | |||||||||||||||||||||||||||||
Year ended 08/31/09 | 7.97 | 0.38 | (d) | (0.90 | ) | (0.52 | ) | (0.39 | ) | 7.06 | (5.61 | ) | 103,975 | 1.74 | (g) | 1.75 | (g) | 6.00 | 52 | |||||||||||||||||||||||||||||
Year ended 08/31/08 | 8.65 | 0.48 | (d) | (0.68 | ) | (0.20 | ) | (0.48 | ) | 7.97 | (2.31 | ) | 68,452 | 1.86 | (g) | 1.87 | (g) | 5.86 | 66 | |||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.04 | 0.56 | (d) | (0.39 | ) | 0.17 | (0.56 | ) | 8.65 | 1.76 | 81,479 | 1.79 | (g) | 1.80 | (g) | 6.15 | 117 | |||||||||||||||||||||||||||||||
Eight months ended 08/31/06 | 9.02 | 0.34 | (d) | 0.02 | 0.36 | (0.34 | ) | 9.04 | 4.05 | 44,853 | 1.97 | (g)(h) | 2.36 | (g)(h) | 5.67 | (h) | 54 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 8.99 | 0.40 | 0.03 | 0.43 | (0.40 | ) | 9.02 | 4.85 | 47,624 | 2.29 | (g) | 2.67 | (g) | 4.44 | 56 | |||||||||||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.10 | 0.39 | (d) | 0.39 | (e) | 0.78 | (0.39 | ) | 7.49 | 11.15 | (e) | 1,080 | 1.37 | (f)(j) | 1.39 | (f)(j) | 5.09 | (f) | 106 | |||||||||||||||||||||||||||||
Year ended 08/31/09 | 8.00 | 0.40 | (d) | (0.89 | ) | (0.49 | ) | (0.41 | ) | 7.10 | (5.19 | ) | 427 | 1.49 | (j) | 1.50 | (j) | 6.25 | 52 | |||||||||||||||||||||||||||||
Year ended 08/31/08 | 8.66 | 0.51 | (d) | (0.66 | ) | (0.15 | ) | (0.51 | ) | 8.00 | (1.81 | ) | 330 | 1.61 | (j) | 1.62 | (j) | 6.11 | 66 | |||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.06 | 0.58 | (d) | (0.40 | ) | 0.18 | (0.58 | ) | 8.66 | 1.91 | 278 | 1.54 | (j) | 1.55 | (j) | 6.40 | 117 | |||||||||||||||||||||||||||||||
Period ended 08/31/06(i) | 9.11 | 0.21 | (d) | (0.05 | ) | 0.16 | (0.21 | ) | 9.06 | 1.80 | 78 | 1.53 | (h)(j) | 1.53 | (h)(j) | 6.11 | (h) | 54 | ||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.07 | 0.42 | (d) | 0.39 | (e) | 0.81 | (0.42 | ) | 7.46 | 11.72 | (e) | 93,479 | 0.87 | (f)(j) | 0.89 | (f)(j) | 5.59 | (f) | 106 | |||||||||||||||||||||||||||||
Period ended 08/31/09(i) | 7.29 | 0.41 | (d) | (0.24 | ) | 0.17 | (0.39 | ) | 7.07 | 3.48 | 20,176 | 1.00 | (h)(j) | 1.01 | (h)(j) | 6.74 | (h) | 52 | ||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.09 | 0.42 | (d) | 0.39 | (e) | 0.81 | (0.43 | ) | 7.47 | 11.65 | (e) | 37,580 | 0.79 | (f)(j) | 0.81 | (f)(j) | 5.67 | (f) | 106 | |||||||||||||||||||||||||||||
Year ended 08/31/09 | 7.99 | 0.44 | (d) | (0.89 | ) | (0.45 | ) | (0.45 | ) | 7.09 | (4.62 | ) | 38,720 | 0.88 | (j) | 0.89 | (j) | 6.86 | 52 | |||||||||||||||||||||||||||||
Year ended 08/31/08 | 8.67 | 0.56 | (d) | (0.68 | ) | (0.12 | ) | (0.56 | ) | 7.99 | (1.46 | ) | 50,786 | 1.01 | (j) | 1.02 | (j) | 6.71 | 66 | |||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.06 | 0.63 | (d) | (0.39 | ) | 0.24 | (0.63 | ) | 8.67 | 2.62 | 48,138 | 0.95 | (j) | 0.96 | (j) | 6.99 | 117 | |||||||||||||||||||||||||||||||
Period ended 08/31/06(i) | 9.11 | 0.23 | (d) | (0.05 | ) | 0.18 | (0.23 | ) | 9.06 | 2.00 | 24,335 | 0.98 | (h)(j) | 0.98 | (h)(j) | 6.66 | (h) | 54 | ||||||||||||||||||||||||||||||
(a) | Includes redemption fees added to shares of beneficial interest which were less than $0.005 per share. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Calculated using average shares outstanding. | |
(e) | Includes the impact of the valuation policy on Corporate Loans effective January 1, 2010. Had the policy change not occurred, Net gains on securities (both realized and unrealized) per share would have been $0.33, $0.33, $0.33, $0.33 and $0.33 for Class A, Class C, Class R, Class Y and Institutional Class shares, respectively and total returns would have been lower.. | |
(f) | Ratios are based on average daily net assets (000’s omitted) of $300,593, $145,804, $709, $40,261 and $37,673 for Class A, Class C, Class R, Class Y and Institutional Class shares, respectively. | |
(g) | Ratio includes line of credit expense of 0.02%, 0.02%, 0.06%, 0.02%, 0.01% (annualized) and 0.54% the years ended August 31, 2010, August 31, 2009, August 31, 2008, August 31, 2007, the eight months ended August 31, 2006 and the year ended December 31, 2005, respectively. | |
(h) | Annualized. | |
(i) | Commencement date of April 13, 2006 for Class R and Institutional Class shares and October 3, 2008 for Class Y shares. | |
(j) | Ratio includes line of credit expense of 0.02%, 0.02%, 0.06%, 0.02% and 0.01% (annualized) the years ended August 31, 2010, August 31, 2009, August 31, 2008, August 31, 2007 and the eight months ended August 31, 2006, respectively. |
38 Invesco Floating Rate Fund
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Floating Rate Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Floating Rate Fund (formerly known as AIM Floating Rate Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, its cash flows 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 Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and intermediate participants, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
October 22, 2010
Houston, Texas
39 Invesco Floating Rate Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 1,023.80 | $ | 5.66 | $ | 1,019.61 | $ | 5.65 | 1.11 | % | ||||||||||||||||||
C | 1,000.00 | 1,022.50 | 8.21 | 1,017.09 | 8.19 | 1.61 | ||||||||||||||||||||||||
R | 1,000.00 | 1,023.90 | 6.94 | 1,018.35 | 6.92 | 1.36 | ||||||||||||||||||||||||
Y | 1,000.00 | 1,025.00 | 4.39 | 1,020.87 | 4.38 | 0.86 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 1,025.40 | 4.03 | 1,021.22 | 4.02 | 0.79 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
40 Invesco Floating Rate Fund
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Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Floating Rate Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Advisers are appropriate and that Invesco Advisers currently is providing satisfactory advisory services in accordance with the terms of the Fund’s investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund’s portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement as well as the sub-advisory contracts for the Fund, as Invesco Senior Secured Management, Inc. currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper
41 Invesco Floating Rate Fund
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performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, and against the S&P/LSTA Leveraged Loan Index. The Board noted that the performance of Class A shares of the Fund was in the first quintile of its performance universe for the one year period, the fifth quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Class A shares of the Fund was below the performance of the Index for the one, three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Class A shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one Canadian mutual fund advised by an Affiliated Sub-Adviser. The Board noted that the Fund’s effective fee rate was below the effective fee rate for the Canadian fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least December 31, 2011 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule includes three breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
42 Invesco Floating Rate Fund
Table of Contents
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 0.00% | |||
Corporate Dividends Received Deduction* | 0.00% | |||
U.S. Treasury Obligations* | 0.00% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
43 Invesco Floating Rate Fund
Table of Contents
Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/ completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our ClientServices department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
FLR-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders August 31, 2010
Invesco Multi-Sector Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
14 | Notes to Financial Statements | |
21 | Financial Highlights | |
22 | Auditor’s Report | |
23 | Fund Expenses | |
24 | Approval of Investment Advisory and Sub-Advisory Agreements | |
26 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Multi-Sector Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Multi-Sector Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended August 31, 2010, equity markets generally produced positive results and the economy showed signs of improvement. Invesco Multi-Sector Fund underperformed the S&P 500 Index, the Fund’s broad market and style-specific index, during the reporting period. The S&P 500 Index has exposure to all 10 sectors of the market. The Fund, on the other hand, invests at least 80% of its assets approximately equally in only five of these 10 market sectors and is overweight the following sectors relative to the index: energy, financial services, health care, information technology (IT) and “leisure” (represented by the consumer discretionary sector). The Fund’s underperformance relative to its benchmark was predominately due to its security selection and overweight exposure in the energy sector. Underweight exposure in the consumer staples and industrials sectors also hurt the Fund’s relative performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -1.16 | % | ||
Class B Shares | -1.86 | |||
Class C Shares | -1.86 | |||
Class Y Shares | -0.91 | |||
Institutional Shares | -0.61 | |||
S&P 500 Index▼ (Broad Market/Style-Specific Index) | 4.93 | |||
Lipper Multi-Cap Core Funds Index▼ (Peer Group Index) | 6.15 | |||
▼ | Lipper Inc. |
How we invest
Your Fund invests normally one-fifth of its assets in equity securities from each of the five following market sectors: energy, financial services, health care, IT and “leisure” (represented by the consumer discretionary sector). Fund managers act independently within their respective sector.
In selecting securities for the Fund, we use a research-oriented “bottom-up” investment approach, focusing on company fundamentals, growth and value prospects. In general, the Fund
emphasizes companies that we believe are well managed and should generate above-average long-term capital appreciation. These companies typically exhibit strong return on capital, cash flow, sustainable growth and superior business strategies that make them market leaders.
In the resulting portfolio, each sector has approximately 20 to 25 holdings. The Fund is rebalanced annually near the fiscal year-end to return the sectors to their approximate equal weightings.
We consider selling a security when we conclude:
n | Its fundamentals are deteriorating. | |
n | A more attractive opportunity presents itself. | |
n | The company is unable to capitalize on market opportunity. | |
n | There is a questionable change in management’s strategic direction. |
Market conditions and your Fund
The U.S. economy provided signs of improvement during the Fund’s fiscal year, potentially indicating that the economy has transitioned from a contraction phase into an expansionary phase. Nevertheless, the pace of recovery remained modest and the transition from government stimulus-induced growth to private economic recovery was uncertain.
The U.S. Federal Reserve’s federal funds target rate remained low ranging from zero to 0.25%.1 Real gross domestic product (GDP) registered positive growth during the reporting period with annualized quarterly increases of 5.0%, 3.7% and 1.7% for the fourth quarter of 2009, and the first and second quarters of 2010, respectively.2 Inflation, measured by the seasonally-adjusted Consumer Price Index (CPI), remained relatively benign. While labor markets improved as layoffs moderated, new hiring remained quite weak. Unemployment, after climbing steadily throughout 2009, fell slightly during the first half of 2010 to a rate of 9.6% nationwide as of August 2010.3
Against this backdrop, financial services, energy and health care were among the weakest performing sectors of the S&P 500 Index.4 Conversely, consumer discretionary, industrials and telecommunication services were the best
Portfolio Composition
By Sector
Information Technology | 20.6 | % | ||
Energy | 19.3 | |||
Health Care | 19.2 | |||
Consumer Discretionary | 18.3 | |||
Financials | 16.6 | |||
Consumer Staples | 3.0 | |||
Money Market Funds | ||||
Plus Other Assets Less Liabilities | 3.0 | |||
Total Net Assets | $277.1 million | |
Total Number of Holdings* | 97 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Top 10 Equity Holdings*
1. Apple Inc. | 3.6 | % | ||
2. DaVita, Inc. | 2.4 | |||
3. Walt Disney Co. (The) | 2.0 | |||
4. Google Inc. | 1.9 | |||
5. Thermo Fisher Scientific, Inc. | 1.7 | |||
6. Occidental Petroleum Corp. | 1.7 | |||
7. Marriott International Inc. | 1.6 | |||
8. Exxon Mobil Corp. | 1.6 | |||
9. Genzyme Corp. | 1.5 | |||
10. Apache Corp. | 1.5 | |||
S&P 500 Index Weightings and Returns
By sector, 8/31/09–8/31/10
Weighting | Return | |||||||
Sector | as of 8/31/10 | |||||||
Consumer Discretionary | ||||||||
(“Leisure”) | 10.25 | % | 17.19 | % | ||||
Consumer Staples | 11.77 | 10.64 | ||||||
Energy | 10.91 | 0.35 | ||||||
Financials | 15.90 | -6.54 | ||||||
Health Care | 11.66 | 0.38 | ||||||
Industrials | 10.54 | 14.48 | ||||||
Information Technology | 18.26 | 3.11 | ||||||
Materials | 3.61 | 7.37 | ||||||
Telecommunication Services | 3.25 | 13.35 | ||||||
Utilities | 3.85 | 10.22 | ||||||
Source: Lipper Inc. |
4 | Invesco Multi-Sector Fund |
Table of Contents
performing sectors. 4 Market allocation accounted for approximately half of the Fund’s underperformance versus the S&P 500 Index. Specifically, each overweight sector, with the exception of the consumer discretionary sector, negatively affected the Fund’s relative performance. Security selection in the consumer discretionary and energy sectors, as well as a lack of holdings in the industrials sector, also detracted from Fund performance. On the other hand, overweight exposure to the consumer discretionary sector and security selection in the health care and IT sectors benefited Fund performance relative to the S&P 500 Index.
Top contributors to the Fund’s absolute performance during the fiscal year included Apple and Walt Disney. Top detractors during the period included Bank of America and International Game Technology.
Apple continued to introduce new innovative products during the reporting period, unveiling a new version of the iPhone and introducing the iPad. The new iPhone 4 includes a video conferencing feature called FaceTime and improved resolution for text and graphics. The iPad was designed to compete with existing net books and may help Apple expand its market share.
Bank of America is one of the world’s largest diversified financial institutions with services including consumer banking, small business banking, credit card services and investment management. The company has expressed intentions to sell a number of non-core assets as part of its strategy to focus on its core business and strengthen its capital ratios.
The Fund continues to offer exposure to five dynamic sectors we believe offer the best growth potential, yet with relatively low correlation to each other. Additionally, the Fund’s structure provides potentially lower volatility than a single sector given our annual rebalancing and correlation considerations.
As always, we thank you for your continued investment in Invesco Multi- Sector Fund.
1 U.S. Federal Reserve
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
4 Lipper Inc.
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
4 Lipper Inc.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Juan Hartsfield
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Multi-Sector Fund with respect to the Fund’s investments in the leisure sector. He joined Invesco in 2004. Mr. Hartsfield earned a B.S. in petroleum engineering from The University of Texas at Austin and an M.B.A. from the University of Michigan.
Andrew Lees
Portfolio manager, is lead manager of Invesco Multi-Sector Fund with respect to the Fund’s investments in the energy sector. He joined Invesco in 2005. Mr. Lees earned a B.A. in economics from the University of Western Ontario and an M.B.A. with concentrations in finance and accounting from McGill University.
Derek Taner
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Multi-Sector Fund with respect to the Fund’s investments in the health care sector. He joined Invesco in 2005. Mr. Taner earned a B.S. in business administration with an emphasis in accounting and finance and an M.B.A. from the Haas School of Business at the University of California (Berkeley).
Warren Tennant
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Multi-Sector Fund with respect to the Fund’s investments in the information technology sector. He joined Invesco in 2000. Mr. Tennant earned both a B.B.A. in finance and an M.B.A. from The University of Texas at Austin.
Meggan Walsh
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Multi-Sector Fund with respect to the Fund’s investments in the financials sector. Ms. Walsh began her investment career in 1987 and joined Invesco in 1991. She earned a B.S. in finance from the University of Maryland and an M.B.A. from Loyola University Maryland.
5 | Invesco Multi-Sector Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Index data from 8/31/02, Fund data from 9/3/02
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and
management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each
segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 | Invesco Multi-Sector Fund |
Table of Contents
Average Annual Total Returns | ||||
As of 8/31/10, including maximum applicable sales charges | ||||
Class A Shares | ||||
Inception (9/3/02) | 4.43 | % | ||
5 Years | -3.76 | |||
1 Year | -6.61 | |||
Class B Shares | ||||
Inception (9/3/02) | 4.41 | % | ||
5 Years | -3.72 | |||
1 Year | -6.76 | |||
Class C Shares | ||||
Inception (9/3/02) | 4.40 | % | ||
5 Years | -3.38 | |||
1 Year | -2.84 | |||
Class Y Shares | ||||
Inception | 5.23 | % | ||
5 Years | -2.56 | |||
1 Year | -0.91 | |||
Institutional Class Shares | ||||
Inception (5/3/04) | 1.84 | % | ||
5 Years | -2.17 | |||
1 Year | -0.61 |
Class Y shares incepted on October 3, 2008. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may
Average Annual Total Returns | ||||
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges. | ||||
Class A Shares | ||||
Inception (9/3/02) | 4.53 | % | ||
5 Years | -2.59 | |||
1 Year | 4.73 | |||
Class B Shares | ||||
Inception (9/3/02) | 4.52 | % | ||
5 Years | -2.55 | |||
1 Year | 4.94 | |||
Class C Shares | ||||
Inception (9/3/02) | 4.52 | % | ||
5 Years | -2.21 | |||
1 Year | 8.95 | |||
Class Y Shares | ||||
Inception | 5.34 | % | ||
5 Years | -1.39 | |||
1 Year | 11.08 | |||
Institutional Class Shares | ||||
Inception (5/3/04) | 1.87 | % | ||
5 Years | -0.99 | |||
1 Year | 11.38 |
be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class Y and Institutional Class shares was 1.40%, 2.15%, 2.15%, 1.15% and 0.82%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
continued from page 8
n | The Lipper Multi-Cap Core Funds Index is an unmanaged index considered representative of multi-cap core funds tracked by Lipper. |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net |
assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | ||
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
7 | Invesco Multi-Sector Fund |
Table of Contents
Invesco Multi-Sector Fund’s investment objective is capital growth.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The businesses in which the Fund invests may be adversely affected by foreign, federal or state regulations governing energy production, distribution and sale. | |
n | Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. | |
n | The financial services sector is subject to extensive government regulation, which may change frequently. In addition, the profitability of businesses in the financial services sector depends on the availability and cost of money and may fluctuate significantly in response to changes in government regulation, interest rates and general economic conditions. Businesses in the financial sector often operate with substantial financial leverage. | |
n | The Fund’s foreign investments may be affected by changes in the foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to |
less regulation resulting in less publicly available information about the companies. | ||
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. | |
n | The Fund’s performance is vulnerable to factors affecting the health care industry, including government regulation, obsolescence caused by scientific advances and technological innovations. | |
n | The Fund invests in different, independently managed sectors. Accordingly, poor performance of an investment in one sector may have a significant effect on the Fund’s net asset value. Additionally, active rebalancing of the Fund’s investments among the sectors may result in increased transaction costs. Independent management of sectors may also result in adverse tax consequences when one or more of the Fund’s portfolio managers effect transactions in the same security at or about the same time. | |
n | The leisure sector depends on consumer discretionary spending, which generally falls during economic downturns. Securities of gambling casinos are often subject to high price volatility and are considered speculative. Securities of companies that make video and electronic games may be affected by the games’ risk of rapid obsolescence. | |
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. |
n | Stocks fall into three broad market capitalization categories — large, medium, and small. Investing primarily in one category carries the risk that, due to current market conditions, that category may be out of favor with |
investors. Small and mid-sized companies may tend to be more vulnerable to adverse developments and more volatile than larger companies. Investments in small and mid-sized companies may involve special risks, including those associated with dependence on a small management group, little or no operating history, little or no track record of success, and limited product lines, market and financial resources. Also, there may be less publicly available information about the issuers of the securities or less market interest in such securities than in the case of larger companies, each of which can cause significant price volatility. The securities of small and mid-sized companies may be illiquid, restricted as to resale, or may trade less frequently and in smaller volume than more widely held securities, which may make it difficult for a fund to establish or close out a position in these securities at prevailing market prices. | ||
n | Certain of the Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile. | |
n | Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers in this sector. | |
n | Start-up companies or earlier stage companies, such as venture capital companies, generally have limited operating histories, no present market for their technologies or products, and no history of earnings or financial services. These companies may rely entirely or in large part on private investments to finance their operations. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
continued on page 7 |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | IAMSX | |
Class B Shares | IBMSX | |
Class C Shares | ICMSX | |
Class Y Shares | IAMYX | |
Institutional Shares | IIMSX |
8 | Invesco Multi-Sector Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.97% | ||||||||
Advertising–1.19% | ||||||||
Omnicom Group Inc. | 94,008 | $ | 3,291,220 | |||||
Apparel Retail–1.78% | ||||||||
American Eagle Outfitters, Inc. | 175,568 | 2,219,179 | ||||||
TJX Cos., Inc. (The) | 68,049 | 2,700,865 | ||||||
4,920,044 | ||||||||
Apparel, Accessories & Luxury Goods–0.50% | ||||||||
Polo Ralph Lauren Corp. | 18,210 | 1,379,225 | ||||||
Application Software–1.35% | ||||||||
Quest Software, Inc.(b) | 85,027 | 1,822,129 | ||||||
TIBCO Software Inc.(b) | 131,748 | 1,909,028 | ||||||
3,731,157 | ||||||||
Asset Management & Custody Banks–1.94% | ||||||||
Federated Investors, Inc.–Class B(c) | 117,872 | 2,457,631 | ||||||
State Street Corp. | 82,800 | 2,904,624 | ||||||
5,362,255 | ||||||||
Biotechnology–6.98% | ||||||||
Amgen Inc.(b) | 61,428 | 3,135,285 | ||||||
BioMarin Pharmaceutical Inc.(b) | 129,444 | 2,626,419 | ||||||
Celgene Corp.(b) | 58,270 | 3,002,070 | ||||||
Genzyme Corp.(b) | 61,479 | 4,310,293 | ||||||
Gilead Sciences, Inc.(b) | 103,675 | 3,303,086 | ||||||
United Therapeutics Corp.(b) | 63,960 | 2,956,231 | ||||||
19,333,384 | ||||||||
Brewers–1.04% | ||||||||
Heineken N.V. (Netherlands)(c) | 64,302 | 2,873,514 | ||||||
Broadcasting–1.58% | ||||||||
Discovery Communications, Inc.–Class A(b) | 38,855 | 1,466,776 | ||||||
Scripps Networks Interactive Inc.–Class A | 72,783 | 2,924,421 | ||||||
4,391,197 | ||||||||
Casinos & Gaming–1.85% | ||||||||
International Game Technology | 178,193 | 2,601,618 | ||||||
Penn National Gaming, Inc.(b) | 89,413 | 2,519,658 | ||||||
5,121,276 | ||||||||
Communications Equipment–1.73% | ||||||||
Ciena Corp.(b) | 91,646 | 1,142,826 | ||||||
Cisco Systems, Inc.(b) | 146,146 | 2,930,227 | ||||||
QUALCOMM, Inc.(b) | 19,049 | 729,767 | ||||||
4,802,820 | ||||||||
Computer Hardware–3.64% | ||||||||
Apple Inc.(b) | 41,421 | 10,080,629 | ||||||
Computer Storage & Peripherals–1.36% | ||||||||
EMC Corp.(b) | 207,274 | 3,780,678 | ||||||
Consumer Finance–2.38% | ||||||||
American Express Co. | 74,765 | 2,980,881 | ||||||
Capital One Financial Corp. | 95,305 | 3,608,247 | ||||||
6,589,128 | ||||||||
Data Processing & Outsourced Services–1.79% | ||||||||
Alliance Data Systems Corp.(b)(c) | 64,739 | 3,637,684 | ||||||
MasterCard, Inc.–Class A | 6,641 | 1,317,309 | ||||||
4,954,993 | ||||||||
Department Stores–1.38% | ||||||||
Kohl’s Corp.(b) | 57,814 | 2,716,102 | ||||||
Nordstrom, Inc. | 38,656 | 1,117,931 | ||||||
3,834,033 | ||||||||
Diversified Capital Markets–1.12% | ||||||||
UBS AG (Switzerland)(b) | 184,950 | 3,112,709 | ||||||
Drug Retail–0.99% | ||||||||
CVS Caremark Corp. | 101,979 | 2,753,433 | ||||||
Electronic Components–0.37% | ||||||||
Corning Inc. | 65,853 | 1,032,575 | ||||||
Electronic Manufacturing Services–0.71% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 396,714 | 1,955,800 | ||||||
General Merchandise Stores–1.32% | ||||||||
Target Corp. | 71,691 | 3,667,712 | ||||||
Health Care Facilities–0.78% | ||||||||
Rhoen-Klinikum AG (Germany) | 98,459 | 2,152,595 | ||||||
Health Care Services–3.60% | ||||||||
DaVita, Inc.(b) | 101,081 | 6,531,854 | ||||||
Express Scripts, Inc.(b) | 80,750 | 3,439,950 | ||||||
9,971,804 | ||||||||
Home Entertainment Software–0.41% | ||||||||
Nintendo Co., Ltd. (Japan) | 4,100 | 1,137,745 | ||||||
Hotels, Resorts & Cruise Lines–1.64% | ||||||||
Marriott International Inc.–Class A | 141,596 | 4,532,488 | ||||||
Insurance Brokers–1.05% | ||||||||
Marsh & McLennan Cos., Inc. | 123,117 | 2,920,335 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Multi-Sector Fund
Table of Contents
Shares | Value | |||||||
Integrated Oil & Gas–6.29% | ||||||||
Chevron Corp. | 29,364 | $ | 2,177,634 | |||||
ConocoPhillips | 30,813 | 1,615,526 | ||||||
Exxon Mobil Corp. | 73,640 | 4,356,542 | ||||||
Occidental Petroleum Corp. | 64,358 | 4,703,283 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 62,988 | 1,670,331 | ||||||
Total S.A.–ADR (France) | 62,379 | 2,909,980 | ||||||
17,433,296 | ||||||||
Internet Software & Services–2.31% | ||||||||
Google Inc.–Class A(b) | 11,486 | 5,168,930 | ||||||
GSI Commerce, Inc.(b) | 54,221 | 1,234,612 | ||||||
6,403,542 | ||||||||
Investment Banking & Brokerage–1.54% | ||||||||
Charles Schwab Corp. (The) | 129,106 | 1,647,393 | ||||||
Morgan Stanley | 106,492 | 2,629,287 | ||||||
4,276,680 | ||||||||
Life & Health Insurance–0.50% | ||||||||
StanCorp Financial Group, Inc. | 39,083 | 1,392,527 | ||||||
Life Sciences Tools & Services–4.06% | ||||||||
Life Technologies Corp.(b) | 70,678 | 3,022,898 | ||||||
Pharmaceutical Product Development, Inc. | 151,435 | 3,478,462 | ||||||
Thermo Fisher Scientific, Inc.(b) | 112,423 | 4,735,257 | ||||||
11,236,617 | ||||||||
Managed Health Care–1.20% | ||||||||
UnitedHealth Group Inc. | 104,878 | 3,326,730 | ||||||
Movies & Entertainment–3.08% | ||||||||
Time Warner Inc. | 97,379 | 2,919,422 | ||||||
Walt Disney Co. (The) | 171,874 | 5,601,374 | ||||||
8,520,796 | ||||||||
Oil & Gas Drilling–0.68% | ||||||||
Ensco PLC–ADR (United Kingdom) | 45,720 | 1,880,464 | ||||||
Oil & Gas Equipment & Services–6.26% | ||||||||
Cameron International Corp.(b) | 84,698 | 3,115,193 | ||||||
FMC Technologies, Inc.(b) | 32,553 | 2,013,403 | ||||||
Halliburton Co. | 143,629 | 4,051,774 | ||||||
National Oilwell Varco Inc. | 43,944 | 1,651,855 | ||||||
Oceaneering International, Inc.(b) | 46,536 | 2,327,265 | ||||||
Schlumberger Ltd. | 48,182 | 2,569,546 | ||||||
Weatherford International Ltd.(b) | 108,530 | 1,618,182 | ||||||
17,347,218 | ||||||||
Oil & Gas Exploration & Production–6.04% | ||||||||
Anadarko Petroleum Corp. | 37,626 | 1,730,420 | ||||||
Apache Corp. | 45,548 | 4,092,488 | ||||||
Cabot Oil & Gas Corp. | 72,733 | 2,024,887 | ||||||
EOG Resources, Inc. | 39,605 | 3,440,486 | ||||||
Southwestern Energy Co.(b) | 101,982 | 3,336,851 | ||||||
Ultra Petroleum Corp.(b) | 54,457 | 2,124,367 | ||||||
16,749,499 | ||||||||
Other Diversified Financial Services–2.97% | ||||||||
Bank of America Corp. | 277,058 | 3,449,372 | ||||||
Citigroup Inc.(b) | 775,216 | 2,883,804 | ||||||
JPMorgan Chase & Co. | 52,279 | 1,900,864 | ||||||
8,234,040 | ||||||||
Pharmaceuticals–2.60% | ||||||||
Novartis AG–ADR (Switzerland) | 60,386 | 3,169,661 | ||||||
Roche Holding AG (Switzerland) | 29,718 | 4,041,273 | ||||||
7,210,934 | ||||||||
Property & Casualty Insurance–0.79% | ||||||||
XL Group PLC (Ireland) | 121,982 | 2,184,698 | ||||||
Regional Banks–2.87% | ||||||||
Fifth Third Bancorp | 232,848 | 2,572,971 | ||||||
SunTrust Banks, Inc. | 117,939 | 2,652,448 | ||||||
Zions Bancorp. | 148,245 | 2,732,155 | ||||||
7,957,574 | ||||||||
Restaurants–2.67% | ||||||||
Darden Restaurants, Inc. | 96,987 | 4,001,684 | ||||||
McDonald’s Corp. | 46,541 | 3,400,285 | ||||||
7,401,969 | ||||||||
Semiconductor Equipment–0.61% | ||||||||
ASML Holding N.V.–New York Shares (Netherlands) | 68,027 | 1,682,308 | ||||||
Semiconductors–2.01% | ||||||||
Avago Technologies Ltd. (Singapore)(b) | 110,035 | 2,217,205 | ||||||
Intel Corp. | 188,536 | 3,340,858 | ||||||
5,558,063 | ||||||||
Soft Drinks–1.02% | ||||||||
PepsiCo, Inc. | 43,876 | 2,815,962 | ||||||
Specialized Consumer Services–0.51% | ||||||||
H&R Block, Inc. | 109,682 | 1,409,414 | ||||||
Specialized Finance–0.58% | ||||||||
Moody’s Corp. | 76,659 | 1,620,571 | ||||||
Specialty Stores–0.80% | ||||||||
Staples, Inc. | 124,702 | 2,215,955 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Shares | Value | |||||||
Systems Software–3.69% | ||||||||
Ariba Inc.(b) | 157,417 | $ | 2,435,241 | |||||
Microsoft Corp. | 124,723 | 2,928,496 | ||||||
Oracle Corp. | 104,215 | 2,280,224 | ||||||
Red Hat, Inc.(b) | 37,840 | 1,307,372 | ||||||
Rovi Corp.(b) | 29,119 | 1,266,968 | ||||||
10,218,301 | ||||||||
Technology Distributors–0.58% | ||||||||
Anixter International Inc.(b) | 35,329 | 1,620,895 | ||||||
Thrifts & Mortgage Finance–0.83% | ||||||||
Hudson City Bancorp, Inc. | 199,776 | 2,302,418 | ||||||
Total Common Stocks & Other Equity Interests (Cost $293,378,871) | 268,683,220 | |||||||
Money Market Funds–3.01% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 4,172,253 | 4,172,253 | ||||||
Premier Portfolio–Institutional Class(d) | 4,172,203 | 4,172,203 | ||||||
Total Money Market Funds (Cost $8,344,456) | 8,344,456 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.98% (Cost $301,723,327) | 277,027,676 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–2.54% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $7,028,130)(d)(e) | 7,028,130 | 7,028,130 | ||||||
TOTAL INVESTMENTS–102.52% (Cost $308,751,457) | 284,055,806 | |||||||
OTHER ASSETS LESS LIABILITIES–(2.52)% | (6,979,786 | ) | ||||||
NET ASSETS–100.00% | $ | 277,076,020 | ||||||
Investment Abbreviation:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of this security was out on loan at August 31, 2010. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $293,378,871)* | $ | 268,683,220 | ||
Investments in affiliated money market funds, at value and cost | 15,372,586 | |||
Total investments, at value (Cost $308,751,457) | 284,055,806 | |||
Receivables for: | ||||
Investments sold | 8,321,581 | |||
Fund shares sold | 48,464 | |||
Dividends | 293,717 | |||
Investment for trustee deferred compensation and retirement plans | 13,178 | |||
Other assets | 31,291 | |||
Total assets | 292,764,037 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 7,339,133 | |||
Fund shares reacquired | 953,965 | |||
Collateral upon return of securities loaned | 7,028,130 | |||
Accrued fees to affiliates | 242,670 | |||
Accrued other operating expenses | 71,761 | |||
Trustee deferred compensation and retirement plans | 52,358 | |||
Total liabilities | 15,688,017 | |||
Net assets applicable to shares outstanding | $ | 277,076,020 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 463,529,425 | ||
Undistributed net investment income (loss) | (89,332 | ) | ||
Undistributed net realized gain (loss) | (161,670,494 | ) | ||
Unrealized appreciation (depreciation) | (24,693,579 | ) | ||
$ | 277,076,020 | |||
Net Assets: | ||||
Class A | $ | 149,389,297 | ||
Class B | $ | 25,273,931 | ||
Class C | $ | 34,376,654 | ||
Class Y | $ | 829,567 | ||
Institutional Class | $ | 67,206,571 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 8,118,785 | |||
Class B | 1,448,448 | |||
Class C | 1,971,389 | |||
Class Y | 44,991 | |||
Institutional Class | 3,580,793 | |||
Class A: | ||||
Net asset value per share | $ | 18.40 | ||
Maximum offering price per share (Net asset value of $18.40 divided by 94.50%) | $ | 19.47 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 17.45 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 17.44 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 18.44 | ||
Institutional Class: | ||||
Net asset value and offering price per share | $ | 18.77 | ||
* | At August 31, 2010, securities with an aggregate value of $6,787,174 were on loan to brokers. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Dividends (net of foreign withholding taxes of $116,473) | $ | 3,567,174 | ||
Dividends from affiliated money market funds (includes securities lending income of $40,095) | 47,867 | |||
Total investment income | 3,615,041 | |||
Expenses: | ||||
Advisory fees | 2,403,576 | |||
Administrative services fees | 120,365 | |||
Custodian fees | 31,321 | |||
Distribution fees: | ||||
Class A | 487,280 | |||
Class B | 329,355 | |||
Class C | 425,250 | |||
Transfer agent fees — A, B, C and Y | 767,390 | |||
Transfer agent fees — Institutional | 2,599 | |||
Trustees’ and officers’ fees and benefits | 29,544 | |||
Other | 171,289 | |||
Total expenses | 4,767,969 | |||
Less: Fees waived, expenses reimbursed and expense offset arrangement(s) | (16,776 | ) | ||
Net expenses | 4,751,193 | |||
Net investment income (loss) | (1,136,152 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $105,671) | (1,476,821 | ) | ||
Foreign currencies | (28,761 | ) | ||
(1,505,582 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 6,162,059 | |||
Foreign currencies | 1,258 | |||
6,163,317 | ||||
Net realized and unrealized gain | 4,657,735 | |||
Net increase in net assets resulting from operations | $ | 3,521,583 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the years ended August 31, 2010 and 2009
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (1,136,152 | ) | $ | 1,637,312 | |||
Net realized gain (loss) | (1,505,582 | ) | (156,971,276 | ) | ||||
Change in net unrealized appreciation (depreciation) | 6,163,317 | (33,997,495 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 3,521,583 | (189,331,459 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Class A | (717,578 | ) | (721,996 | ) | ||||
Class Y | (6,863 | ) | (1,333 | ) | ||||
Institutional Class | (738,087 | ) | (682,511 | ) | ||||
Total distributions from net investment income | (1,462,528 | ) | (1,405,840 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Class A | — | (10,704,183 | ) | |||||
Class B | — | (1,933,014 | ) | |||||
Class C | — | (2,101,270 | ) | |||||
Class Y | — | (17,388 | ) | |||||
Institutional Class | — | (4,031,180 | ) | |||||
Total distributions from net realized gains | — | (18,787,035 | ) | |||||
Share transactions–net: | ||||||||
Class A | (71,403,839 | ) | (76,767,968 | ) | ||||
Class B | (12,151,899 | ) | (11,082,703 | ) | ||||
Class C | (9,504,240 | ) | (13,265,760 | ) | ||||
Class Y | (246,895 | ) | 1,005,711 | |||||
Institutional Class | (14,882,232 | ) | (31,483,048 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (108,189,105 | ) | (131,593,768 | ) | ||||
Net increase (decrease) in net assets | (106,130,050 | ) | (341,118,102 | ) | ||||
Net assets: | ||||||||
Beginning of year | 383,206,070 | 724,324,172 | ||||||
End of year (includes undistributed net investment income (loss) of $(89,332) and $1,406,338, respectively) | $ | 277,076,020 | $ | 383,206,070 | ||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Multi-Sector Fund, formerly AIM Multi-Sector Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
The Fund’s investment objective is capital growth.
The Fund currently consists of five different classes of shares: Class A, Class B, Class C, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
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A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be |
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evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | ||
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks |
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associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .695% | ||
Next $250 million | 0 | .67% | ||
Next $500 million | 0 | .645% | ||
Next $1.5 billion | 0 | .62% | ||
Next $2.5 billion | 0 | .595% | ||
Next $2.5 billion | 0 | .57% | ||
Next $2.5 billion | 0 | .545% | ||
Over $10 billion | 0 | .52% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least December 31, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class Y and Institutional Class shares to 2.00%, 2.75%, 2.75%, 1.75% and 1.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on December 31, 2011. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended August 31, 2010, the Adviser waived advisory fees of $7,941.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended August 31, 2010, Invesco Ltd. reimbursed expenses of the Fund in the amount of $643.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class B, Class C, Class Y and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B and Class C shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended August 31, 2010, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance
17 Invesco Multi-Sector Fund
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to the shareholder. During the year ended August 31, 2010, IDI advised the Fund that IDI retained $20,932 in front-end sales commissions from the sale of Class A shares and $0, $65,621 and $2,771 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 276,221,621 | $ | 7,834,185 | $ | — | $ | 284,055,806 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended August 31, 2010, the Fund engaged in securities sales of $1,038,886, which resulted in net realized gains of $105,671.
NOTE 5—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions. For the year ended August 31, 2010, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $8,192.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
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NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 1,462,528 | $ | 1,409,975 | ||||
Long-term capital gain | — | 18,782,900 | ||||||
Total distributions | $ | 1,462,528 | $ | 20,192,875 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Net unrealized appreciation (depreciation) — investments | $ | (25,258,377 | ) | |
Net unrealized appreciation — other investments | 2,072 | |||
Temporary book/tax differences | (53,164 | ) | ||
Post-October deferrals | (4,535,586 | ) | ||
Capital loss carryforward | (156,608,350 | ) | ||
Shares of beneficial interest | 463,529,425 | |||
Total net assets | $ | 277,076,020 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 55,800,354 | ||
August 31, 2018 | 100,807,996 | |||
Total capital loss carryforward | $ | 156,608,350 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $107,462,449 and $219,481,118, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 35,029,512 | ||
Aggregate unrealized (depreciation) of investment securities | (60,287,889 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (25,258,377 | ) | |
Cost of investments for tax purposes is $309,314,183. |
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses, on August 31, 2010, undistributed net investment income (loss) was increased by $1,103,010, undistributed net realized gain (loss) was increased by $28,763 and shares of beneficial interest decreased by $1,131,773. This reclassification had no effect on the net assets of the Fund.
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NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended August 31, | ||||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 634,444 | $ | 12,661,909 | 2,430,932 | $ | 42,223,567 | ||||||||||
Class B | 92,129 | 1,751,944 | 338,897 | 5,569,903 | ||||||||||||
Class C | 189,000 | 3,601,521 | 422,586 | 6,640,016 | ||||||||||||
Class Y(b) | 8,115 | 161,510 | 71,812 | 1,243,553 | ||||||||||||
Institutional Class | 368,416 | 7,306,153 | 263,613 | 4,423,162 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | 34,676 | 679,647 | 716,046 | 10,626,125 | ||||||||||||
Class B | — | — | 122,794 | 1,744,905 | ||||||||||||
Class C | — | — | 138,864 | 1,971,869 | ||||||||||||
Class Y | 300 | 5,889 | 1,261 | 18,721 | ||||||||||||
Institutional Class | 37,053 | 738,087 | 312,372 | 4,713,691 | ||||||||||||
Automatic conversion of Class B shares to Class A shares: | ||||||||||||||||
Class A | 174,700 | 3,488,388 | 258,699 | 4,216,415 | ||||||||||||
Class B | (183,711 | ) | (3,488,388 | ) | (270,776 | ) | (4,216,415 | ) | ||||||||
Reacquired: | ||||||||||||||||
Class A(b) | (4,438,894 | ) | (88,233,783 | ) | (8,230,046 | ) | (133,834,075 | ) | ||||||||
Class B | (552,338 | ) | (10,415,455 | ) | (922,382 | ) | (14,181,096 | ) | ||||||||
Class C | (694,887 | ) | (13,105,761 | ) | (1,400,392 | ) | (21,877,645 | ) | ||||||||
Class Y | (20,694 | ) | (414,294 | ) | (15,803 | ) | (256,563 | ) | ||||||||
Institutional Class | (1,131,728 | ) | (22,926,472 | ) | (2,332,008 | ) | (40,619,901 | ) | ||||||||
Net increase (decrease) in share activity | (5,483,419 | ) | $ | (108,189,105 | ) | (8,093,531 | ) | $ | (131,593,768 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 32% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
In addition, 22% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual funds that are also advised by Invesco Aim. | ||
(b) | Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A into Class Y shares of the Fund: |
Class | Shares | Amount | ||||||
Class Y | 23,026 | $ | 475,716 | |||||
Class A | (23,026 | ) | (475,716 | ) | ||||
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | $ | 18.68 | $ | (0.05 | ) | $ | (0.16 | ) | $ | (0.21 | ) | $ | (0.07 | ) | $ | — | $ | (0.07 | ) | $ | 18.40 | (1.16 | )% | $ | 149,389 | 1.32 | %(d) | 1.32 | %(d) | (0.28 | )%(d) | 32 | % | |||||||||||||||||||||||
Year ended 08/31/09 | 25.33 | 0.07 | (5.93 | ) | (5.86 | ) | (0.05 | ) | (0.74 | ) | (0.79 | ) | 18.68 | (22.34 | ) | 218,772 | 1.39 | 1.40 | 0.43 | 31 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 28.93 | 0.07 | (2.34 | ) | (2.27 | ) | — | (1.33 | ) | (1.33 | ) | 25.33 | (8.22 | ) | 418,874 | 1.21 | 1.22 | 0.24 | 58 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 25.53 | (0.04 | ) | 3.88 | 3.84 | (0.12 | ) | (0.32 | ) | (0.44 | ) | 28.93 | 15.13 | 508,895 | 1.23 | 1.29 | (0.15 | ) | 44 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/06 | 24.16 | 0.17 | 1.69 | 1.86 | — | (0.49 | ) | (0.49 | ) | 25.53 | 7.74 | 311,492 | 1.30 | 1.37 | 0.67 | 66 | ||||||||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 17.78 | (0.19 | ) | (0.14 | ) | (0.33 | ) | — | — | — | 17.45 | (1.86 | ) | 25,274 | 2.07 | (d) | 2.07 | (d) | (1.03 | )(d) | 32 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 24.27 | (0.05 | ) | (5.70 | ) | (5.75 | ) | — | (0.74 | ) | (0.74 | ) | 17.78 | (22.93 | ) | 37,206 | 2.14 | 2.15 | (0.32 | ) | 31 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 27.97 | (0.13 | ) | (2.24 | ) | (2.37 | ) | — | (1.33 | ) | (1.33 | ) | 24.27 | (8.89 | ) | 68,526 | 1.96 | 1.97 | (0.51 | ) | 58 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 24.79 | (0.24 | ) | 3.76 | 3.52 | (0.02 | ) | (0.32 | ) | (0.34 | ) | 27.97 | 14.26 | 87,469 | 1.98 | 2.04 | (0.90 | ) | 44 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/06 | 23.64 | (0.02 | ) | 1.66 | 1.64 | — | (0.49 | ) | (0.49 | ) | 24.79 | 6.97 | 73,997 | 2.05 | 2.12 | (0.08 | ) | 66 | ||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 17.77 | (0.19 | ) | (0.14 | ) | (0.33 | ) | — | — | — | 17.44 | (1.86 | ) | 34,377 | 2.07 | (d) | 2.07 | (d) | (1.03 | )(d) | 32 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 24.26 | (0.05 | ) | (5.70 | ) | (5.75 | ) | — | (0.74 | ) | (0.74 | ) | 17.77 | (22.94 | ) | 44,023 | 2.14 | 2.15 | (0.32 | ) | 31 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 27.96 | (0.13 | ) | (2.24 | ) | (2.37 | ) | — | (1.33 | ) | (1.33 | ) | 24.26 | (8.89 | ) | 80,439 | 1.96 | 1.97 | (0.51 | ) | 58 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 24.78 | (0.24 | ) | 3.76 | 3.52 | (0.02 | ) | (0.32 | ) | (0.34 | ) | 27.96 | 14.27 | 94,760 | 1.98 | 2.04 | (0.90 | ) | 44 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/06 | 23.63 | (0.02 | ) | 1.66 | 1.64 | — | (0.49 | ) | (0.49 | ) | 24.78 | 6.97 | 69,604 | 2.05 | 2.12 | (0.08 | ) | 66 | ||||||||||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 18.72 | (0.01 | ) | (0.15 | ) | (0.16 | ) | (0.12 | ) | — | (0.12 | ) | 18.44 | (0.91 | ) | 830 | 1.07 | (d) | 1.07 | (d) | (0.03 | )(d) | 32 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09(e) | 20.66 | 0.10 | (1.24 | ) | (1.14 | ) | (0.06 | ) | (0.74 | ) | (0.80 | ) | 18.72 | (4.54 | ) | 1,072 | 1.17 | (f) | 1.18 | (f) | 0.65 | (f) | 31 | |||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 19.07 | 0.05 | (0.15 | ) | (0.10 | ) | (0.20 | ) | — | (0.20 | ) | 18.77 | (0.61 | ) | 67,207 | 0.79 | (d) | 0.79 | (d) | 0.25 | (d) | 32 | ||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 25.81 | 0.17 | (6.05 | ) | (5.88 | ) | (0.12 | ) | (0.74 | ) | (0.86 | ) | 19.07 | (21.89 | ) | 82,134 | 0.81 | 0.82 | 1.01 | 31 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 29.35 | 0.19 | (2.37 | ) | (2.18 | ) | (0.03 | ) | (1.33 | ) | (1.36 | ) | 25.81 | (7.81 | ) | 156,486 | 0.75 | 0.76 | 0.70 | 58 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 25.83 | 0.09 | 3.93 | 4.02 | (0.18 | ) | (0.32 | ) | (0.50 | ) | 29.35 | 15.67 | 163,891 | 0.77 | 0.83 | 0.31 | 44 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06 | 24.33 | 0.29 | 1.70 | 1.99 | — | (0.49 | ) | (0.49 | ) | 25.83 | 8.23 | 87,147 | 0.83 | 0.90 | 1.14 | 66 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $194,912, $32,935, $42,525, $1,050 and $77,992 for Class A, Class B, Class C, Class Y and Institutional Class shares, respectively. | |
(e) | Commencement date of October 3, 2008. | |
(f) | Annualized. |
21 Invesco Multi-Sector Fund
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Multi-Sector Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Multi-Sector Fund (formerly know as AIM Multi-Sector Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
22 Invesco Multi-Sector Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 924.60 | $ | 6.45 | $ | 1,018.50 | $ | 6.77 | 1.33 | % | ||||||||||||||||||
B | 1,000.00 | 921.30 | 10.07 | 1,014.72 | 10.56 | 2.08 | ||||||||||||||||||||||||
C | 1,000.00 | 921.30 | 10.07 | 1,014.72 | 10.56 | 2.08 | ||||||||||||||||||||||||
Y | 1,000.00 | 926.20 | 5.24 | 1,019.76 | 5.50 | 1.08 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 927.40 | 3.79 | 1,021.27 | 3.97 | 0.78 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
23 Invesco Multi-Sector Fund
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Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Multi-Sector Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Advisers are appropriate and that Invesco Advisers currently is providing satisfactory advisory services in accordance with the terms of the Fund’s investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund’s portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
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B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper Multi-Cap Core Funds Index. The Board noted that the performance of Class A shares of the Fund was in the third quintile of its performance universe for the one and five year periods and the fourth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Class A shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers advised the Board that the Fund’s prospectus limits the Fund to investment in five sectors, two of which have been the worst performing sectors since the onset of the bear market in 2007. Invesco Advisers noted that some of the underlying lead sector managers were changed in 2009 and that it continues to monitor the Fund Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Class A shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after any advisory fee waivers and before any expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including two mutual funds advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was below the effective fee rate for one of the mutual funds and that the other fund was a fund of funds for which Invesco Advisers does not charge a separate advisory fee.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least December 31, 2011 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 99.43% | |||
Corporate Dividends Received Deduction* | 99.43% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website,
invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
I-MSE-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Select Real Estate Income Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
14 | Notes to Financial Statements | |
21 | Financial Highlights | |
23 | Auditor’s Report | |
24 | Fund Expenses | |
25 | Approval of Investment Advisory and Sub-Advisory Agreements | |
27 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Select Real Estate Income Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Select Real Estate Income Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
In general, equity markets produced positive results, and the economy showed signs of improvement during the fiscal year ended August 31, 2010. The U.S. real estate investment trust (REIT) market benefited from improvements in credit markets and increased access to capital through debt refinancing and secondary equity offerings. As a result, the Fund outperformed the broad market, as measured by the S&P 500 Index, by a wide margin. However, the Fund underperformed the Custom Select Real Estate Income Index, its style-specific benchmark, due primarily to the Fund’s allocation among fixed income and fixed income-like securities Your Fund’s long-term performance appears later in this report.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 21.85 | % | ||
Class B Shares | 21.02 | |||
Class C Shares | 21.02 | |||
Class Y Shares | 22.21 | |||
Institutional Class Shares | 22.46 | |||
S&P 500 Index▼ (Broad Market Index) | 4.93 | |||
Custom Select Real Estate Income Index■ (Style-Specific Index) | 33.48 | |||
Lipper Real Estate Funds Index▼ (Peer Group Index) | 27.83 |
▼ | Lipper Inc.; ■ Invesco Aim, Lipper Inc., Bloomberg LP |
How we invest
Your Fund holds primarily real estate-oriented securities. We focus on public companies whose value is driven by tangible assets. Our goal is to create a fund that will provide attractive current income. We use a fundamentals-driven investment process, including property market cycle analysis, property evaluation and management and structure review to identify securities with:
n | Attractive relative dividend yields. | |
n | Favorable property market outlook. | |
n | Reasonable valuations relative to peer investment alternatives. |
We attempt to manage risk by allocating between property related common stocks and fixed income securities as well as
diversifying by property types and geographic location and also limiting the size of any one holding.
We will consider selling a holding when:
n | Relative yields and/or valuation falls below desired levels. | |
n | Risk/return relationships change significantly. | |
n | Company fundamentals change (property type, geography or management changes). | |
n | A more attractive investment opportunity is identified. |
Market conditions and your Fund
The U.S. economy provided signs of improvement during the Fund’s fiscal year, potentially indicating that the
economy had transitioned from a contraction phase into an expansionary phase. Nevertheless, the pace of recovery remained modest and the transition from government stimulus-induced growth to private economic recovery was uncertain.
The U.S. Federal Reserve’s (the Fed) federal funds target rate remained low — ranging from zero to 0.25%.1 Real gross domestic product (GDP) registered positive growth during the reporting period with quarterly annualized increases of 5.0%, 3.7% and 1.7% for the fourth quarter of 2009, first and second quarter 2010, respectively.2 Inflation, as measured by the seasonally adjusted Consumer Price Index (CPI), remained relatively benign. While labor markets improved as layoffs moderated, new hiring remained quite weak.3 Unemployment, after climbing steadily throughout 2009, fell slightly during the first half of 2010 to a rate of 9.6% nationwide as of August 2010.3
Given this environment, the U.S. REIT market, as measured by the FTSE NAREIT Equity REITs Index, produced a gain for the period and outperformed the broad market, as measured by the S&P 500 Index, by a wide margin. The Fund underperformed its style-specific benchmark, the Custom Select Real Estate Income Index, as a result of underweight exposure in REIT preferred stock and an overweight exposure in commercial mortgage backed securities (CMBS).
On an absolute basis, each property REIT sector contributed positively to the Fund’s fiscal year performance. The Fund’s holdings in health care REITs, regional mall REITs and apartment REITs, in particular, enhanced performance during the period.
Portfolio Composition
By property type
Health Care | 16.1 | % | ||
Office | 12.0 | |||
Regional Malls | 10.0 | |||
Diversified | 9.5 | |||
Industrial/Office: Mixed | 8.9 | |||
Apartments | 8.0 | |||
Asset-Backed Securities | 7.3 | |||
Freestanding | 5.5 | |||
Specialty Properties | 4.4 | |||
Lodging-Resorts | 4.1 | |||
Industrial | 3.4 | |||
Self Storage Facilities | 3.2 | |||
Shopping Centers | 3.2 | |||
Bonds & Notes | 2.4 | |||
Money Market Funds Plus | ||||
Other Assets Less Liabilities | 2.0 |
Top 10 Equity Holdings*
1. | Simon Property Group, Inc. | 7.5 | % | |||||
2. | Senior Housing Properties Trust | 4.5 | ||||||
3. | Essex Property Trust, Inc. | 4.3 | ||||||
4. | Liberty Property Trust | 4.2 | ||||||
5. | Health Care REIT, Inc. | 3.8 | ||||||
6. | National Retail Properties, Inc. | 3.2 | ||||||
7. | Mack-Cali Realty Corp. | 2.9 | ||||||
8. | Washington REIT | 2.6 | ||||||
9. | Hospitality Properties Trust | 2.2 | ||||||
10. | Ventas, Inc. | 2.1 |
Total Net Assets | $225.7 million | |||
Total Number of Holdings* | 99 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Select Real Estate Income Fund |
Table of Contents
Top contributors during the fiscal year included Simon Property Group and Vornado Realty Trust. Recent equity offerings and debt refinancing by Simon Property Group, a REIT which offered an attractive portfolio of top-tier U.S. regional malls, covered near-term debt maturities and provided necessary capital for future acquisition opportunities. Similarly, Vornado’s recent equity offering provided liquidity for new acquisitions. Moreover, the company benefited from improving rental fundamentals in Manhattan and Washington D.C., the firm’s largest markets.
Hospitality Properties Trust and CBL & Associates Properties, however, were top detractors from Fund performance during the fiscal year. Hospitality Properties Trust (HPT) was not a Fund holding for most of the period due to a less favorable growth profile relative to other opportunities in the hotel sector. HPT had a less favorable growth profile due to lower operating leverage from its owned hotels and its rent exposure to less favorable travel centers. CBL & Associates, on the other hand, is among the largest U.S. regional mall REITs with properties from coast to coast. Both positions have provided above-average divided yields.
Because volatility in the market continued at elevated levels, we remained active in portfolio positioning given changes in relative value between stocks. Across sectors, we added to certain positions whose valuations began to reflect a bottoming in operating fundamentals. In addition, we reduced exposure to several relatively low risk stocks whose valuations appeared relatively high.
We remained committed to owning quality real estate companies that we believe may benefit from relatively better sector trends. We continued to manage risk by holding a portfolio diversified by property type and geographic location. Lower leveraged companies with above average levels of dividend coverage remained favored in the portfolio.
We thank you for your continued investment in Invesco Select Real Estate Income Fund and encourage everyone to follow a disciplined asset allocation strategy and rebalance regularly.
1 U.S. Federal Reserve
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Joe Rodriguez, Jr.
Portfolio manager, is lead manager of Invesco Select Real Estate Income Fund. He is head of real estate securities for Invesco Real Estate, where he oversees all phases of the unit, including securities research and administration. Mr. Rodriguez began his investment career in 1983 and joined Invesco in 1990. He earned a B.B.A. in economics and finance as well as an M.B.A. in finance from Baylor University.
Mark Blackburn
Chartered Financial Analyst, portfolio manager, is manager of Invesco Select Real Estate Income Fund. He earned a B.S. in accounting from Louisiana State University and an M.B.A. from Southern Methodist University. Mr. Blackburn is a Certified Public Accountant.
Paul Curbo
Chartered Financial Analyst, portfolio manager, is manager of Invesco Select Real Estate Income Fund. He joined Invesco in 1998. Mr. Curbo earned a B.B.A. in finance from the University of Texas at Dallas.
James Trowbridge
Portfolio manager, is manager of Invesco Select Real Estate Income Fund. He joined Invesco in 1989. Mr. Trowbridge earned his B.A. in finance from Indiana University.
Darin Turner
Portfolio manager, is manager of Invesco Select Real Estate Income Fund. He joined Invesco in 2005. Mr. Turner earned a B.B.A. in finance from Baylor University, an M.S. in real estate from the University of Texas at Arlington and an M.B.A. specializing in investments from Southern Methodist University.
Assisted by the Real Estate Team
5 | Invesco Select Real Estate Income Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Fund and index data from 5/31/02
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not.
Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 | Invesco Select Real Estate Income Fund |
Table of Contents
Average Annual Total Returns
As of 8/31/10, including maximum applicable
sales charges
sales charges
Class A Shares | ||||||||
Inception (5/31/02) | 8.86 | % | ||||||
5 Years | 1.72 | |||||||
1 Year | 15.08 | |||||||
Class B Shares | ||||||||
Inception | 8.56 | % | ||||||
5 Years | 1.84 | |||||||
1 Year | 16.02 | |||||||
Class C Shares | ||||||||
Inception | 8.56 | % | ||||||
5 Years | 1.98 | |||||||
1 Year | 20.02 | |||||||
Class Y Shares | ||||||||
Inception | 9.62 | % | ||||||
5 Years | 2.91 | |||||||
1 Year | 22.21 | |||||||
Institutional Class Shares | ||||||||
Inception | 9.78 | % | ||||||
5 Years | 3.17 | |||||||
1 Year | 22.46 |
On March 12, 2007, the Fund reorganized from a Closed-End Fund to an Open-End Fund. Performance shown prior to that date is that of the Closed-End Fund’s Common shares and includes the fees applicable to Common shares. The Closed-End Fund’s Common shares performance reflects any applicable fee waivers or expense reimbursements.
Class B shares incepted on March 9, 2007. Performance shown prior to that date is that of Class A shares, restated to reflect the higher 12b-1 fees applicable to Class B shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
Class C shares incepted on March 9, 2007. Performance shown prior to that date is that of Class A shares, restated to reflect the higher 12b-1 fees applicable to Class C shares. Class A shares performance reflects any applicable fee
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||||
Inception (5/31/02) | 8.16 | % | ||||||
5 Years | 0.61 | |||||||
1 Year | 29.02 | |||||||
Class B Shares | ||||||||
Inception | 7.87 | % | ||||||
5 Years | 0.72 | |||||||
1 Year | 30.55 | |||||||
Class C Shares | ||||||||
Inception | 7.87 | % | ||||||
5 Years | 0.86 | |||||||
1 Year | 34.55 | |||||||
Class Y Shares | ||||||||
Inception | 8.93 | % | ||||||
5 Years | 1.79 | |||||||
1 Year | 36.94 | |||||||
Institutional Class Shares | ||||||||
Inception | 9.09 | % | ||||||
5 Years | 2.05 | |||||||
1 Year | 37.19 |
waivers or expense reimbursements.
Class Y shares incepted on October 3, 2008. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
Institutional Class shares incepted on March 9, 2007. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested
distributions (reinvested at net asset value, except for periods prior to March 12, 2007 where reinvestments were made at the lower of the Closed-End Fund’s net asset value or market price), changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class Y and Institutional Class shares was 1.75, 2.50%, 2.50%, 1.50% and 1.13%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses. Class Y and Institutional class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
Fund performance was positively impacted by a temporary 2% fee on redemptions that was in effect from March 12, 2007 to March 12, 2008. Without income from this temporary fee, returns would have been lower.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
continued from page 8
a rigorous and comprehensive study program in the field of investment management and research analysis. | ||
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require |
adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights.
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
7 | Invesco Select Real Estate Income Fund |
Table of Contents
Invesco Select Real Estate Income Fund’s investment objectives are high current income and, secondarily, capital appreciation.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | On March 12, 2007, Invesco Select Real Estate Income Fund was reorganized from a Closed-End Fund to an Open-End Fund. Information presented for Class A shares prior to the reorganization included financial data for the Closed-End Fund’s Common Shares. | |
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the
Fund
Fund
n | The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. | |
n | Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. | |
n | The Fund’s foreign investments may be affected by changes in the foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. | |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. |
n | The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. | |
n | The Fund may hold illiquid securities that it is unable to sell at the preferred time or price and could lose its entire investment in such securities. | |
n | The Fund’s investments in fixed income securities rated lower than investment grade, or if unrated, of comparable quality as determined by the adviser (commonly know as junk bonds) pose significant risks. The prices of junk bonds are likely to be more sensitive to adverse economic changes or individual corporate developments than higher rated securities and involve a greater risk of default. The secondary market for junk bonds may be less liquid than the market for higher quality securities. | |
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. | |
n | The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. | |
n | The Fund is non-diversified and can invest a greater portion of its assets in a single issuer. A change in the value of the issuer could affect the value of the Fund more than if it was a diversified fund. |
n | Because the Fund concentrates its assets in the real estate industry, an investment in the Fund will be closely linked to the performance of the real estate markets. | |
n | Short sales may cause the Fund to repurchase a security at a higher price, thereby causing a loss. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
n | The Custom Select Real Estate Income Index, created by Invesco to serve as a benchmark for Invesco Select Real Estate Income Fund, is composed of the following indexes: FTSE NAREIT Equity REIT (50%) and Wachovia Hybrid and Preferred Securities REIT (50%). | |
n | The Lipper Real Estate Funds Index is an unmanaged index considered representative of real estate funds tracked by Lipper. | |
n | The FTSE NAREIT Equity REITs Index is an unmanaged index considered representative of U.S. REITs. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
continued on page 7
Fund Nasdaq Symbols
Class A Shares | ASRAX | |||
Class B Shares | SARBX | |||
Class C Shares | ASRCX | |||
Class Y Shares | ASRYX | |||
Institutional Class Shares | ASRIX |
8 | Invesco Select Real Estate Income Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Real Estate Investment Trusts, Common Stocks & Other Equity Interests–61.62% | ||||||||
Apartments–7.74% | ||||||||
Camden Property Trust | 91,650 | $ | 4,193,904 | |||||
Essex Property Trust, Inc. | 91,900 | 9,720,263 | ||||||
Mid-America Apartment Communities, Inc. | 63,000 | 3,557,610 | ||||||
17,471,777 | ||||||||
Diversified–5.40% | ||||||||
Cohen & Steers Quality Income Realty Fund, Inc. | 201,773 | 1,396,269 | ||||||
Colonial Properties Trust | 87,834 | 1,393,047 | ||||||
Neuberger Berman Real Estate Securities Income Fund Inc. | 16,275 | 57,451 | ||||||
Vornado Realty Trust | 41,388 | 3,354,912 | ||||||
Washington Real Estate Investment Trust | 194,891 | 5,971,460 | ||||||
12,173,139 | ||||||||
Freestanding–4.47% | ||||||||
Getty Realty Corp. | 80,900 | 2,008,747 | ||||||
National Retail Properties Inc. | 291,500 | 7,100,940 | ||||||
Realty Income Corp. | 29,600 | 964,664 | ||||||
10,074,351 | ||||||||
Healthcare–14.42% | ||||||||
Health Care REIT, Inc. | 188,073 | 8,640,074 | ||||||
LTC Properties, Inc. | 46,750 | 1,153,790 | ||||||
Medical Properties Trust Inc. | 125,700 | 1,236,888 | ||||||
Nationwide Health Properties, Inc. | 76,200 | 2,931,414 | ||||||
OMEGA Healthcare Investors, Inc. | 170,900 | 3,665,805 | ||||||
Senior Housing Properties Trust | 429,750 | 10,099,125 | ||||||
Ventas, Inc. | 95,500 | 4,823,705 | ||||||
32,550,801 | ||||||||
Industrial–3.35% | ||||||||
DCT Industrial Trust Inc. | 489,900 | 2,268,237 | ||||||
EastGroup Properties, Inc. | 84,100 | 2,964,525 | ||||||
ProLogis | 213,900 | 2,320,815 | ||||||
7,553,577 | ||||||||
Industrial/Office: Mixed–4.22% | ||||||||
Liberty Property Trust | 313,400 | 9,517,958 | ||||||
Lodging-Resorts–2.18% | ||||||||
Hospitality Properties Trust | 252,100 | 4,928,555 | ||||||
Office–4.82% | ||||||||
Corporate Office Properties Trust | 18,150 | 655,215 | ||||||
Highwoods Properties, Inc. | 14,300 | 447,304 | ||||||
Mack-Cali Realty Corp. | 212,800 | 6,564,880 | ||||||
Piedmont Office Realty Trust Inc.–Class A(b) | 175,300 | 3,218,508 | ||||||
10,885,907 | ||||||||
Regional Malls–8.60% | ||||||||
CBL & Associates Properties, Inc. | 208,600 | 2,544,920 | ||||||
Simon Property Group, Inc. | 186,468 | 16,866,031 | ||||||
19,410,951 | ||||||||
Shopping Centers–2.99% | ||||||||
Inland Real Estate Corp. | 252,850 | 1,949,473 | ||||||
Ramco-Gershenson Properties Trust | 99,200 | 1,035,648 | ||||||
Regency Centers Corp. | 81,850 | 2,984,251 | ||||||
Tanger Factory Outlet Centers, Inc. | 16,800 | 776,496 | ||||||
6,745,868 | ||||||||
Specialty Properties–3.43% | ||||||||
Digital Realty Trust, Inc. | 61,900 | 3,668,813 | ||||||
Entertainment Properties Trust | 35,100 | 1,512,459 | ||||||
Government Properties Income Trust | 99,850 | 2,563,149 | ||||||
7,744,421 | ||||||||
Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests (Cost $116,753,714) | 139,057,305 | |||||||
Preferred Stocks–26.68% | ||||||||
Apartments–0.27% | ||||||||
BRE Properties, Inc., Series D, 6.75% Pfd. | 25,300 | 619,850 | ||||||
Diversified–4.09% | ||||||||
Vornado Realty Trust, Series E, 7.00% Pfd. | 135,963 | 3,495,609 | ||||||
Series H, 6.75% Pfd. | 91,800 | 2,276,640 | ||||||
Series I, 6.63% Pfd. | 140,900 | 3,452,050 | ||||||
9,224,299 | ||||||||
Freestanding–1.01% | ||||||||
National Retail Properties Inc., Series C, 7.38% Pfd. | 90,450 | 2,281,149 | ||||||
Healthcare–1.63% | ||||||||
Health Care REIT, Inc., Series F, 7.63% Pfd. | 36,500 | 930,750 | ||||||
Omega Healthcare Investors, Inc., Series D, 8.38% Pfd. | 107,100 | 2,748,186 | ||||||
3,678,936 | ||||||||
Industrial–0.02% | ||||||||
ProLogis, Series C, 8.54% Pfd. | 950 | 49,281 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Select Real Estate Income Fund
Table of Contents
Shares | Value | |||||||
Industrial/Office: Mixed–4.68% | ||||||||
Duke Realty Corp., Series J, 6.63% Pfd. | 4,954 | $ | 110,970 | |||||
Series K, 6.50% Pfd. | 5,072 | 113,511 | ||||||
Series L, 6.60% Pfd. | 59,500 | 1,334,585 | ||||||
Series M, 6.95% Pfd. | 72,400 | 1,759,320 | ||||||
Series N, 7.25% Pfd. | 15,590 | 388,035 | ||||||
PS Business Parks, Inc., Series L, 7.60% Pfd. | 36,400 | 919,828 | ||||||
Series M, 7.20% Pfd. | 123,100 | 3,087,348 | ||||||
Series O, 7.38% Pfd. | 110,763 | 2,842,179 | ||||||
10,555,776 | ||||||||
Lodging-Resorts–1.95% | ||||||||
Eagle Hospitality Properties Trust Inc., Series A, 8.25% Pfd. | 195,800 | 149,297 | ||||||
Hospitality Properties Trust, Series C, 7.00% Pfd. | 28,800 | 696,384 | ||||||
LaSalle Hotel Properties, Series D, 7.50% Pfd. | 62,833 | 1,492,912 | ||||||
Series G, 7.25% Pfd. | 88,950 | 2,073,647 | ||||||
4,412,240 | ||||||||
Office–7.16% | ||||||||
Alexandria Real Estate Equities Inc., Series D, 7.00% Pfd. | 24,100 | 561,831 | ||||||
BioMed Realty Trust, Inc., Series A, 7.38% Pfd. | 79,600 | 1,986,816 | ||||||
Brandywine Realty Trust, Series D, 7.38% Pfd. | 10,355 | 250,695 | ||||||
Corporate Office Properties Trust, Series J, 7.63% Pfd. | 83,470 | 2,089,254 | ||||||
Kilroy Realty Corp., Series E, 7.80% Pfd. | 58,195 | 1,452,547 | ||||||
Series F, 7.50% Pfd. | 188,500 | 4,672,915 | ||||||
SL Green Realty Corp., Series C, 7.63% Pfd. | 151,100 | 3,786,566 | ||||||
Series D, 7.88% Pfd. | 54,400 | 1,367,616 | ||||||
16,168,240 | ||||||||
Regional Malls–1.42% | ||||||||
CBL & Associates Properties, Inc., Series D, 7.38% Pfd. | 85,200 | 2,014,980 | ||||||
Taubman Centers, Inc., Series G, 8.00% Pfd. | 45,900 | 1,179,630 | ||||||
3,194,610 | ||||||||
Self Storage Facilities–3.22% | ||||||||
Public Storage, Series H, 6.95% Pfd. | 34,500 | 879,405 | ||||||
Series I, 7.25% Pfd. | 98,600 | 2,573,460 | ||||||
Series L, 6.75% Pfd. | 62,400 | 1,580,592 | ||||||
Series M, 6.63% Pfd. | 87,300 | 2,234,007 | ||||||
7,267,464 | ||||||||
Shopping Centers–0.26% | ||||||||
Developers Diversified Realty Corp., Series H, 7.38% Pfd. | 9,200 | 219,052 | ||||||
Series I, 7.5% Pfd. | 14,800 | 358,308 | ||||||
577,360 | ||||||||
Specialty Properties–0.97% | ||||||||
Digital Realty Trust, Inc., Series B, 7.88% Pfd. | 85,211 | 2,189,923 | ||||||
Total Preferred Stocks (Cost $58,904,188) | 60,219,128 | |||||||
Principal | ||||||||
Amount | ||||||||
Asset-Backed Securities–7.28% | ||||||||
Banc of America Large Loan Inc., Series 2006-BIX1, Class B, Floating Rate Pass Through Ctfs., 0.42%, 10/15/19(c)(d) | $ | 1,465,000 | 1,334,468 | |||||
Series 2006-BIX1, Class E, Floating Rate Pass Through Ctfs., 0.52%, 10/15/19(c)(d) | 1,900,000 | 1,567,355 | ||||||
Bear Stearns Commercial Mortgage Securities, Series 2005-PWR8, Class A2, Pass Through Ctfs., 4.48%, 06/11/41 | 4,419 | 4,415 | ||||||
Series 2005-T18, Class A2, Variable Rate Pass Through Ctfs., 4.56%, 02/13/42(c) | 84,639 | 84,770 | ||||||
Series 2005-T18, Class AJ, Variable Rate Pass Through Ctfs., 5.01%, 02/13/42(c) | 350,000 | 314,532 | ||||||
Citigroup Commercial Mortgage Trust, Series 2006-C5, Class AMP3, Pass Through Ctfs., 5.50%, 10/15/49(d) | 1,731,078 | 1,587,307 | ||||||
Commercial Mortgage Pass Through Ctfs., Series 2001-J1A, Class C, Variable Rate Pass Through Ctfs., 6.83%, 02/16/34(c)(d) | 900,000 | 912,274 | ||||||
Credit Suisse First Boston Mortgage Securities Corp., Series 2003-C3, Class G, Variable Rate Pass Through Ctfs., 4.62%, 05/15/38(c)(d) | 25,000 | 22,484 | ||||||
Credit Suisse Mortgage Capital Ctfs., Series 2006-TF2A, Class A2, Floating Rate Pass Through Ctfs., 0.45%, 10/15/21(c)(d) | 1,900,000 | 1,621,747 | ||||||
DLJ Commercial Mortgage Corp., Series 1998-CG1, Class B4, Variable Rate Pass Through Ctfs., 7.46%, 06/10/31(c)(d) | 340,000 | 376,220 | ||||||
Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class AJ, Variable Rate Pass Through Ctfs., 4.86%, 08/10/42(c) | 400,000 | 367,342 | ||||||
GS Mortgage Securities Corp. II, Series 2001-LIBA, Class C, Pass Through Ctfs., 6.73%, 02/14/16(d) | 627,000 | 643,405 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2002-C7, Class B, Pass Through Ctfs., 5.08%, 01/15/36 | 96,000 | 101,434 | ||||||
Series 2005-C1, Class A2, Pass Through Ctfs., 4.31%, 02/15/30 | 80,324 | 80,618 | ||||||
Series 2005-C3, Class AJ, Pass Through Ctfs., 4.84%, 07/15/40 | 1,250,000 | 1,111,201 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Select Real Estate Income Fund
Table of Contents
Principal | ||||||||
Amount | Value | |||||||
Merrill Lynch Floating Trust, Series 2006-1, Class B, Floating Rate Pass Through Ctfs., 0.45%, 06/15/22(c)(d) | $ | 1,950,000 | $ | 1,669,605 | ||||
Series 2006-1, Class D, Floating Rate Pass Through Ctfs., 0.48%, 06/15/22(c)(d) | 1,925,000 | 1,560,414 | ||||||
Merrill Lynch Mortgage Trust, Series 2004-MKB1, Class B, Variable Rate Pass Through Ctfs., 5.28%, 02/12/42(c) | 25,000 | 26,267 | ||||||
Morgan Stanley Capital I, Series 2005-HQ7, Class AJ, Variable Rate Pass Through Ctfs., 5.38%, 11/14/42(c) | 1,120,000 | 1,031,714 | ||||||
Series 2005-T19, Class A2, Pass Through Ctfs., 4.73%, 06/12/47 | 15,320 | 15,309 | ||||||
Series 2006-IQ11, Class B, Variable Rate Pass Through Ctfs., 5.94%, 10/15/42(c) | 270,000 | 177,306 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2003-C5, Class B, Pass Through Ctfs., 4.11%, 06/15/35 | 180,000 | 184,809 | ||||||
Series 2005-C19, Class A4, Pass Through Ctfs., 4.61%, 05/15/44 | 240,000 | 244,550 | ||||||
Series 2006-WL7A, Class A2, Floating Rate Pass Through Ctfs., 0.40%, 09/15/21(c)(d) | 1,700,000 | 1,396,312 | ||||||
Total Asset-Backed Securities (Cost $16,206,465) | 16,435,858 | |||||||
Bonds & Notes–2.39% | ||||||||
Industrial–1.95% | ||||||||
ProLogis, Sr. Unsec. Notes, 6.25%, 03/15/17 | 4,500,000 | 4,397,559 | ||||||
Shopping Centers–0.44% | ||||||||
Developers Diversified Realty Corp., Sr. Unsec. Medium-Term Notes, 7.50%, 07/15/18 | 1,000,000 | 1,001,250 | ||||||
Total Bonds & Notes (Cost $5,251,538) | 5,398,809 | |||||||
Shares | ||||||||
Money Market Funds–3.06% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 3,455,993 | 3,455,993 | ||||||
Premier Portfolio–Institutional Class(e) | 3,455,993 | 3,455,993 | ||||||
Total Money Market Funds (Cost $6,911,986) | 6,911,986 | |||||||
TOTAL INVESTMENTS–101.03% (Cost $204,027,891) | 228,023,086 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.03)% | (2,329,210 | ) | ||||||
NET ASSETS–100.00% | $ | 225,693,876 | ||||||
Investment Abbreviations:
Ctfs. | – Certificates | |
Pfd. | – Preferred | |
REIT | – Real Estate Investment Trust | |
Sr. | – Senior | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Property type classifications used in this report are generally according to FSTE National Association of Real Estate Investment Trusts (“NAREIT”) Equity REITs Index, which is exclusively owned by NAREIT. | |
(b) | Non-income producing security. | |
(c) | Interest or dividend rate is re-determined periodically. Rate shown is the rate in effect on August 31, 2010. | |
(d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at August 31, 2010 was $12,691,591, which represented 5.62% of the Fund’s Net Assets. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Select Real Estate Income Fund
Table of Contents
Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $197,115,905) | $ | 221,111,100 | ||
Investments in affiliated money market funds, at value and cost | 6,911,986 | |||
Total investments, at value (Cost $204,027,891) | 228,023,086 | |||
Receivables for: | ||||
Investments sold | 2,301,776 | |||
Fund shares sold | 604,903 | |||
Dividends and interest | 323,622 | |||
Investment for trustee deferred compensation and retirement plans | 20,298 | |||
Other assets | 24,787 | |||
Total assets | 231,298,472 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 5,031,642 | |||
Fund shares reacquired | 282,990 | |||
Accrued fees to affiliates | 152,103 | |||
Accrued other operating expenses | 62,955 | |||
Trustee deferred compensation and retirement plans | 74,906 | |||
Total liabilities | 5,604,596 | |||
Net assets applicable to shares outstanding | $ | 225,693,876 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 238,089,563 | ||
Undistributed net investment income | 1,135,981 | |||
Undistributed net realized gain (loss) | (37,526,863 | ) | ||
Unrealized appreciation | 23,995,195 | |||
$ | 225,693,876 | |||
Net Assets: | ||||
Class A | $ | 147,568,004 | ||
Class B | $ | 1,675,775 | ||
Class C | $ | 16,691,898 | ||
Class Y | $ | 22,046,917 | ||
Institutional Class | $ | 37,711,282 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 18,992,990 | |||
Class B | 216,242 | |||
Class C | 2,154,061 | |||
Class Y | 2,845,044 | |||
Institutional Class | 4,857,721 | |||
Class A: | ||||
Net asset value per share | $ | 7.77 | ||
Maximum offering price per share | ||||
(Net asset value of $7.75 divided by 94.50%) | $ | 8.22 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 7.75 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 7.75 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 7.75 | ||
Institutional Class: | ||||
Net asset value and offering price per share | $ | 7.76 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Select Real Estate Income Fund
Table of Contents
Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Dividends | $ | 8,639,731 | ||
Dividends from affiliated money market funds | 11,667 | |||
Interest | 1,533,290 | |||
Total investment income | 10,184,688 | |||
Expenses: | ||||
Advisory fees | 1,439,691 | |||
Administrative services fees | 50,000 | |||
Custodian fees | 21,327 | |||
Distribution fees: | ||||
Class A | 319,185 | |||
Class B | 10,823 | |||
Class C | 115,551 | |||
Transfer agent fees — A, B, C and Y | 373,323 | |||
Transfer agent fees — Institutional | 13,087 | |||
Trustees’ and officers’ fees and benefits | 24,367 | |||
Other | 174,273 | |||
Total expenses | 2,541,627 | |||
Less: Fees waived, expenses reimbursed and expense offset arrangement(s) | (14,743 | ) | ||
Net expenses | 2,526,884 | |||
Net investment income | 7,657,804 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities | 12,627,123 | |||
Change in net unrealized appreciation of investment securities | 16,465,933 | |||
Net realized and unrealized gain | 29,093,056 | |||
Net increase in net assets resulting from operations | $ | 36,750,860 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Select Real Estate Income Fund
Table of Contents
Statement of Changes in Net Assets
For the years ended August 31, 2010 and 2009
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 7,657,804 | $ | 4,057,436 | ||||
Net realized gain (loss) | 12,627,123 | (41,566,429 | ) | |||||
Change in net unrealized appreciation | 16,465,933 | 18,227,028 | ||||||
Net increase (decrease) in net assets resulting from operations | 36,750,860 | (19,281,965 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Class A | (4,685,749 | ) | (3,432,938 | ) | ||||
Class B | (30,709 | ) | (25,447 | ) | ||||
Class C | (317,879 | ) | (56,307 | ) | ||||
Class Y | (484,837 | ) | (20,142 | ) | ||||
Institutional Class | (1,558,748 | ) | (471,968 | ) | ||||
Total distributions from net investment income | (7,077,922 | ) | (4,006,802 | ) | ||||
Share transactions–net: | ||||||||
Class A | 32,864,761 | 4,766,853 | ||||||
Class B | 832,365 | (193,923 | ) | |||||
Class C | 10,729,487 | 2,443,803 | ||||||
Class Y | 17,204,765 | 2,356,933 | ||||||
Institutional Class | (2,073,276 | ) | 23,093,975 | |||||
Net increase in net assets resulting from share transactions | 59,558,102 | 32,467,641 | ||||||
Net increase in net assets | 89,231,040 | 9,178,874 | ||||||
Net assets: | ||||||||
Beginning of year | 136,462,836 | 127,283,962 | ||||||
End of year (includes undistributed net investment income of $1,135,981 and $554,808, respectively) | $ | 225,693,876 | $ | 136,462,836 | ||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Select Real Estate Income Fund, formerly AIM Select Real Estate Income Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest.
Prior to March 12, 2007, the Fund operated as AIM Select Real Estate Income Fund (the “Closed-End Fund”). The Closed-End Fund was reorganized as an open-end fund at which time the Fund became a new series portfolio of the Trust. The Closed-End Fund was reorganized as an open-end fund on March 12, 2007 (the “Reorganization Date”) through the transfer of all its assets and liabilities to the Fund (the “Reorganization”). Prior to the Reorganization, the Closed-End Fund redeemed Preferred Shares in their entirety. As part of the Reorganization, the Closed-End Fund was restructured from a sole series of AIM Select Real Estate Income Fund to a new series portfolio of the Trust. Upon the closing of the Reorganization, holders of the Closed-End Fund Common Shares received Class A shares of the Fund. Information for the Common Shares of the Closed-End Fund, prior to the Reorganization is included with Class A shares throughout this report.
The Fund’s investment objectives are high current income and secondarily, capital appreciation.
The Fund currently consists of five different classes of shares: Class A, Class B, Class C, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
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The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices will be used to value debt obligations and Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from the REIT, the recharacterization will be based on available information which may include the previous year’s allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income |
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and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital in the Statement of Changes in Net Assets. These recharacterizations are reflected in the accompanying financial statements. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. | |
The Fund concentrates its assets in the real estate industry, an investment in the fund will be closely linked to the performance of the real estate markets. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural or technological developments. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least December 31, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class Y and
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Institutional Class shares to 2.00%, 2.75%, 2.75%, 1.75% and 1.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on December 31, 2011. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended August 31, 2010, the Adviser waived advisory fees of $13,047.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended August 31, 2010, Invesco Ltd. reimbursed expenses of the Fund in the amount of $241.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class B, Class C, Class Y and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B and Class C shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended August 31, 2010, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended August 31, 2010, IDI advised the Fund that IDI retained $49,374 in front-end sales commissions from the sale of Class A shares and $0, $2,752 and $2,164 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
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The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 203,354,363 | $ | 2,834,056 | $ | — | $ | 206,188,419 | ||||||||
Corporate Debt Securities | — | 5,398,809 | — | 5,398,809 | ||||||||||||
Asset Backed Securities | — | 16,435,858 | — | 16,435,858 | ||||||||||||
Total Investments | $ | 203,354,363 | $ | 24,668,723 | $ | — | $ | 228,023,086 | ||||||||
NOTE 4—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions. For the year ended August 31, 2010, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $1,455.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended August 31, 2010, the Fund paid legal fees of $3,138 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 7,077,922 | $ | 4,006,802 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 1,212,266 | ||
Net unrealized appreciation — investments | 21,291,658 | |||
Temporary book/tax differences | (76,285 | ) | ||
Capital loss carryforward | (34,823,326 | ) | ||
Shares of beneficial interest | 238,089,563 | |||
Total net assets | $ | 225,693,876 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
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The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 19,031,688 | ||
August 31, 2018 | 15,791,638 | |||
Total capital loss carryforward | $ | 34,823,326 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $204,862,958 and $139,798,735, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 26,293,228 | ||
Aggregate unrealized (depreciation) of investment securities | (5,001,570 | ) | ||
Net unrealized appreciation of investment securities | $ | 21,291,658 | ||
Cost of investments for tax purposes is $206,731,428. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of excise taxes, on August 31, 2010, undistributed net investment income was increased by $1,291 and shares of beneficial interest decreased by $1,291. This reclassification had no effect on the net assets of the Fund.
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NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended August 31, | ||||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 9,908,927 | $ | 71,310,905 | 6,297,362 | $ | 34,744,449 | ||||||||||
Class B | 154,695 | 1,133,322 | 57,532 | 329,420 | ||||||||||||
Class C | 1,665,745 | 11,927,859 | 560,262 | 3,230,335 | ||||||||||||
Class Y(b) | 3,080,777 | 22,003,408 | 1,186,116 | 6,557,609 | ||||||||||||
Institutional Class | 1,674,481 | 12,079,829 | 3,944,022 | 25,122,675 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | 480,564 | 3,507,569 | 377,291 | 2,179,083 | ||||||||||||
Class B | 3,704 | 27,078 | 4,076 | 23,964 | ||||||||||||
Class C | 35,013 | 257,127 | 8,753 | 49,216 | ||||||||||||
Class Y | 48,005 | 356,587 | 2,841 | 13,740 | ||||||||||||
Institutional Class | 215,117 | 1,558,340 | 82,199 | 471,968 | ||||||||||||
Automatic conversion of Class B shares to Class A shares: | ||||||||||||||||
Class A | 8,015 | 59,246 | 3,793 | 21,265 | ||||||||||||
Class B | (8,029 | ) | (59,246 | ) | (3,803 | ) | (21,265 | ) | ||||||||
Reacquired: | ||||||||||||||||
Class A(b) | (5,752,142 | ) | (42,012,959 | ) | (5,633,762 | ) | (32,177,944 | ) | ||||||||
Class B | (37,046 | ) | (268,789 | ) | (89,390 | ) | (526,042 | ) | ||||||||
Class C | (197,317 | ) | (1,455,499 | ) | (149,028 | ) | (835,748 | ) | ||||||||
Class Y | (700,975 | ) | (5,155,230 | ) | (771,720 | ) | (4,214,416 | ) | ||||||||
Institutional Class | (2,134,077 | ) | (15,711,445 | ) | (437,953 | ) | (2,500,668 | ) | ||||||||
Net increase in share activity | 8,445,457 | $ | 59,558,102 | 5,438,591 | $ | 32,467,641 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 57% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A and Investor Class shares into Class Y shares of the Fund: |
Class | Shares | Amount | ||||||
Class Y | 6,791 | $ | 48,556 | |||||
Class A | (6,791 | ) | (48,556 | ) | ||||
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco funds offering such shares until they convert.
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NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. Information presented prior to March 12, 2007 includes financial data for the common shares of the Closed-End Fund.
Class A* | ||||||||||||||||||||||||
Year ended | Eight months ended | Year ended | ||||||||||||||||||||||
August 31, | August 31, | August 31, | ||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of period | $ | 6.62 | $ | 8.38 | $ | 16.27 | $ | 17.35 | $ | 17.49 | $ | 20.02 | ||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.28 | (a) | 0.27 | (a) | 0.42 | (a) | 0.44 | (a) | 0.86 | 0.90 | ||||||||||||||
Net gains (losses) on securities (both realized and unrealized) | 1.14 | (1.75 | ) | (1.54 | ) | (1.54 | ) | 3.88 | (0.36 | ) | ||||||||||||||
Less distributions to auction rate preferred shareholders of Closed-End Fund from net investment income(b) | N/A | N/A | N/A | N/A | (0.20 | ) | (0.17 | ) | ||||||||||||||||
Total from investment operations | 1.42 | (1.48 | ) | (1.12 | ) | (1.10 | ) | 4.54 | 0.37 | |||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Dividends from net investment income | (0.27 | ) | (0.28 | ) | (0.65 | ) | (0.38 | ) | (0.89 | ) | (1.24 | ) | ||||||||||||
Distributions from net realized gains | — | — | (6.18 | ) | (0.09 | ) | (3.84 | ) | (1.66 | ) | ||||||||||||||
Total distributions | (0.27 | ) | (0.28 | ) | (6.83 | ) | (0.47 | ) | (4.73 | ) | (2.90 | ) | ||||||||||||
Increase from common shares of Closed-End Fund repurchased | N/A | N/A | N/A | — | 0.05 | — | ||||||||||||||||||
Redemption fees added to shares of beneficial interest | — | — | 0.06 | 0.49 | N/A | N/A | ||||||||||||||||||
Net asset value, end of period | $ | 7.77 | $ | 6.62 | $ | 8.38 | $ | 16.27 | $ | 17.35 | $ | 17.49 | ||||||||||||
Market value per common share of Closed-End Fund at period-end | $ | N/A | $ | N/A | $ | N/A | $ | N/A | $ | 16.67 | $ | 14.98 | ||||||||||||
Total return at net asset value | 21.85 | %(c) | (17.12 | )%(c) | (7.47 | )%(c)(d) | (3.59 | )%(c)(d) | 29.15 | %(e) | 4.44 | %(e) | ||||||||||||
Market value return | N/A | N/A | N/A | N/A | 44.88 | % | 2.33 | % | ||||||||||||||||
Ratios/supplemental data: | ||||||||||||||||||||||||
Net assets, end of period (000s omitted) | $ | 147,568 | $ | 94,979 | $ | 111,529 | $ | 224,000 | $ | 678,394 | $ | 698,380 | ||||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.37 | %(f) | 1.73 | % | 1.32 | % | 1.08 | %(g) | 0.96 | %(h) | 0.95 | %(h) | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.38 | %(f) | 1.74 | % | 1.33 | % | 1.23 | %(g) | 1.33 | %(h) | 1.33 | %(h) | ||||||||||||
Ratio of net investment income to average net assets | 3.93 | %(f) | 4.83 | % | 3.91 | % | 3.82 | %(g) | 4.59 | %(h) | 4.70 | %(h) | ||||||||||||
Ratio of distributions to auction rate preferred shareholders of Closed-End Fund to average net attributable to common shares of Closed-End Fund | N/A | N/A | N/A | N/A | 1.30 | %(g) | 0.86 | % | ||||||||||||||||
Portfolio turnover rate(i) | 77 | % | 59 | % | 73 | % | 24 | % | 23 | % | 17 | % | ||||||||||||
Auction rate preferred shares of Closed-End Fund: | ||||||||||||||||||||||||
Liquidation value, end of period (000s omitted) | N/A | N/A | N/A | N/A | — | $ | 205,000 | |||||||||||||||||
Total shares outstanding | N/A | N/A | N/A | N/A | — | 8,200 | ||||||||||||||||||
Asset coverage per share | N/A | N/A | N/A | N/A | — | $ | 110,168 | |||||||||||||||||
Liquidation and market value per share | N/A | N/A | N/A | N/A | — | $ | 25,000 | |||||||||||||||||
* | Prior to March 12, 2007 the Fund operated as a Closed-End Fund. On such date, holders of common shares of Closed-End Fund received Class A shares of the Fund equal to the number of Closed-End Fund common shares they owned prior to the Reorganization. | |
(a) | Calculated using average shares outstanding. | |
(b) | Based on average number of common shares outstanding of Closed-End Fund. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Includes the impact of the temporary 2% redemption fee which was effective March 12, 2007 through March 11, 2008. | |
(e) | Net asset value return includes adjustments in accordance with accounting principles generally accepted in the United States of America and measures the changes in common shares’ value of Closed-End over the period indicated, taking into account dividends as reinvested. Market value return is computed based upon the New York Stock Exchange market price of the Closed-End Fund’s common shares and excludes the effects of brokerage commissions. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Closed-End Fund’s dividend reinvestment plan. | |
(f) | Ratios are based on average daily net assets (000s omitted) of $127,674. | |
(g) | Annualized. | |
(h) | Ratios do not reflect the effect of dividend payments to auction rate preferred shareholders; income ratios reflect income earned on investments made with assets attributable to auction rate preferred shares of Closed-End Fund. | |
(i) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
21 Invesco Select Real Estate Income Fund
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Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | $ | 6.60 | $ | 0.23 | $ | 1.14 | $ | 1.37 | $ | (0.22 | ) | $ | — | $ | (0.22 | ) | $ | 7.75 | 21.02 | % | $ | 1,676 | 2.12 | %(d) | 2.13 | %(d) | 3.18 | %(d) | 77 | % | ||||||||||||||||||||||||||
Year ended 08/31/09 | 8.37 | 0.23 | (1.77 | ) | (1.54 | ) | (0.23 | ) | — | (0.23 | ) | 6.60 | (17.91 | ) | 680 | 2.48 | 2.49 | 4.08 | 59 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 16.23 | 0.28 | (1.40 | )(e) | (1.12 | ) | (0.56 | ) | (6.18 | ) | (6.74 | ) | 8.37 | (8.01 | ) | 1,126 | 2.07 | 2.08 | 3.16 | 73 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07(f) | 17.34 | 0.22 | (1.09 | )(e) | (0.87 | ) | (0.24 | ) | — | (0.24 | ) | 16.23 | (5.10 | ) | 162 | 2.04 | (g) | 2.04 | (g) | 2.86 | (g) | 24 | ||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.60 | 0.23 | 1.14 | 1.37 | (0.22 | ) | — | (0.22 | ) | 7.75 | 21.02 | 16,692 | 2.12 | (d) | 2.13 | (d) | 3.18 | (d) | 77 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 8.38 | 0.23 | (1.78 | ) | (1.55 | ) | (0.23 | ) | — | (0.23 | ) | 6.60 | (18.00 | ) | 4,296 | 2.48 | 2.49 | 4.08 | 59 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 16.23 | 0.29 | (1.40 | )(e) | (1.11 | ) | (0.56 | ) | (6.18 | ) | (6.74 | ) | 8.38 | (7.90 | ) | 1,932 | 2.07 | 2.08 | 3.16 | 73 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07(f) | 17.34 | 0.22 | (1.09 | )(e) | (0.87 | ) | (0.24 | ) | — | (0.24 | ) | 16.23 | (5.10 | ) | 356 | 2.04 | (g) | 2.04 | (g) | 2.86 | (g) | 24 | ||||||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.60 | 0.31 | 1.13 | 1.44 | (0.29 | ) | — | (0.29 | ) | 7.75 | 22.21 | 22,047 | 1.12 | (d) | 1.13 | (d) | 4.18 | (d) | 77 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/09(f) | 7.15 | 0.26 | (0.63 | ) | (0.37 | ) | (0.18 | ) | — | (0.18 | ) | 6.60 | (4.23 | ) | 2,755 | 1.53 | (g) | 1.53 | (g) | 5.03 | (g) | 59 | ||||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.62 | 0.32 | 1.13 | 1.45 | (0.31 | ) | — | (0.31 | ) | 7.76 | 22.27 | 37,711 | 0.92 | (d) | 0.93 | (d) | 4.38 | (d) | 77 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 8.39 | 0.31 | (1.77 | ) | (1.46 | ) | (0.31 | ) | — | (0.31 | ) | 6.62 | (16.75 | ) | 33,753 | 1.11 | 1.12 | 5.45 | 59 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 16.27 | 0.37 | (1.37 | )(e) | (1.00 | ) | (0.70 | ) | (6.18 | ) | (6.88 | ) | 8.39 | (6.91 | ) | 12,696 | 0.88 | 0.89 | 4.35 | 73 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07(f) | 17.34 | 0.32 | (1.09 | )(e) | (0.77 | ) | (0.30 | ) | — | (0.30 | ) | 16.27 | (4.53 | ) | 10 | 0.89 | (g) | 0.89 | (g) | 4.01 | (g) | 24 | ||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $1,082, $11,555, $14,009 and $37,638 for Class B, Class C, Class Y and Institutional Class shares, respectively. | |
(e) | Includes the impact of the temporary 2% redemption fee which was effective March 12, 2007 through March 11, 2008. Redemption fees added to shares of beneficial interest for Class B, Class C and Institutional Class shares were $0.05, $0.05 and $0.04 per share and $0.47, $0.47 and $0.48 per share for the years ended August 31, 2008 and the eight months ended August 31, 2007, respectively. | |
(f) | Commencement date of March 9, 2007 for Class B, Class C and Institutional Class shares and October 3, 2008 for Class Y shares. | |
(g) | Annualized. |
22 Invesco Select Real Estate Income Fund
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NOTE 11—Financial Highlights—(continued)
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Select Real Estate Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Select Real Estate Income Fund (formerly known as AIM Select Real Estate Income Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets 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 Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
23 Invesco Select Real Estate Income Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 1,102.00 | $ | 7.10 | $ | 1,018.45 | $ | 6.82 | 1.34 | % | ||||||||||||||||||
B | 1,000.00 | 1,096.70 | 11.05 | 1,014.67 | 10.61 | 2.09 | ||||||||||||||||||||||||
C | 1,000.00 | 1,096.70 | 11.05 | 1,014.67 | 10.61 | 2.09 | ||||||||||||||||||||||||
Y | 1,000.00 | 1,102.00 | 5.78 | 1,019.71 | 5.55 | 1.09 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 1,102.90 | 4.72 | 1,020.72 | 4.53 | 0.89 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
24 Invesco Select Real Estate Income Fund
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Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Select Real Estate Income Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Advisers are appropriate and that Invesco Advisers currently is providing satisfactory advisory services in accordance with the terms of the Fund’s investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund’s portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
25 Invesco Select Real Estate Income Fund
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The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper Real Estate Funds Index. The Board noted that the performance of Class A shares of the Fund was in the first quintile of its Lipper performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Class A shares of the Fund was above the performance of the Index for the one, three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Class A shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds with investment strategies comparable to those of the Fund.
The Board considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board also noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least December 31, 2011 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
26 Invesco Select Real Estate Income Fund
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 0% | |||
Corporate Dividends Received Deduction* | 0% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
27 Invesco Select Real Estate Income Fund
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
SREI-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Invesco Structured Core Fund
Annual Report to Shareholders August 31, 2010
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
15 | Notes to Financial Statements | |
22 | Financial Highlights | |
23 | Auditor’s Report | |
24 | Fund Expenses | |
25 | Approval of Investment Advisory and Sub-Advisory Agreements | |
27 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letter to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Structured Core Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Structured Core Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended August 31, 2010, Class A shares of Invesco Structured Core Fund, at net asset value (NAV), lagged the S&P 500 Index and underperformed the Lipper Large-Cap Core Funds Index. The Fund seeks to provide long-term growth of capital by investing, normally, at least 80% of its assets in a diversified portfolio of securities of large-cap companies.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -1.07 | % | ||
Class B Shares | -1.85 | |||
Class C Shares | -1.85 | |||
Class R Shares | -1.30 | |||
Class Y Shares | -0.85 | |||
Investor Class Shares | -1.07 | |||
Institutional Class Shares | -0.83 | |||
S&P 500 Index▼ (Broad Market/Style-Specific Index) | 4.93 | |||
Lipper Large-Cap Core Funds Index▼ (Peer Group Index) | 2.70 | |||
▼ | Lipper Inc. |
How we invest
We manage your Fund to provide exposure to large-cap core equity stocks. The portfolio strives to outperform the S&P 500 Index while minimizing the amount of additional risk relative to the benchmark. The Fund can be used as a long-term allocation to large cap stocks that complements other style-specific strategies within a diversified asset allocation strategy.
Our investment process integrates the following key steps:
n Universe development |
n Stock rankings |
n Risk assessment |
n Portfolio construction |
n Trading |
While the companies included in the S&P 500 Index are used as a general guide for developing the Fund’s investable universe, non-benchmark stocks may also be considered. Each stock in the universe is evaluated on four factors: company earnings momentum, price trend, management action and relative
valuation. The scores from these four factors are combined to arrive at an overall alpha score (excess return forecast) for each stock. Each alpha score is relative to the other securities within the same industry. Stocks are also evaluated on a multitude of other factors to develop a stock-specific risk forecast and transaction cost forecast.
We then incorporate the alpha forecast, risk forecast and transaction cost forecast using an optimizer (a software tool) to build a portfolio that we believe is an optimal balance of the stocks’ potential risk and return. This portfolio is constructed according to certain constraints to increase the probability that the Fund’s relative performance and volatility remain within strategy guidelines. We continually monitor the portfolio and the overall investment process is repeated on a monthly basis to determine which companies should be bought or sold.
In terms of risk management, we seek to minimize any style biases in the portfolio. Active managers typically add
value in one of, or a combination of, four areas: beta bias (relative volatility), style bias, stock selection and sector/industry over- and underweight. We attempt to add value through our stock selection decisions. Consequently, our risk management process seeks to neutralize the Fund’s exposure relative to the benchmark with regard to beta, style and sector/industry exposures.
Market conditions and your Fund
Over the past year investors were optimistic about the prospect of an improving economy given accommodative monetary policy, fiscal stimulus and improving strength in the manufacturing sector. However, optimism turned to pessimism when there was little good news to counter the seeds of economic troubles planted in the first quarter, which were already weighing heavily on the market. Within the U.S., waning consumer confidence, worsening employment outlook and continued pressures in the financial sector confirmed that economic growth was stalling. Internationally, concerns arose from news of slowing economic growth in China and ongoing concerns about debt burdens in the southern eurozone, despite support from their northern peers. With little positive news to support the market, steady gains became steep losses.
At the beginning of the 12-month period covered by this report, riskier assets outperformed securities considered safe havens, such as U.S. Treasury securities. This trend continued through the middle of April 2010. However, renewed credit problems overseas and the market correction that occurred in May and continued into August created a more uncertain environment — prompting many investors to favor potential safety over risk. Although recent market volatility created challenges, it also created some investment opportunities as companies with positive fundamentals became more attractively valued.
Portfolio Composition
By sector
Information Technology | 20.3 | % | ||
Consumer Discretionary | 15.9 | |||
Financials | 13.4 | |||
Health Care | 12.8 | |||
Energy | 12.4 | |||
Consumer Staples | 8.6 | |||
Telecommunication Services | 5.3 | |||
Materials | 4.5 | |||
Industrials | 2.7 | |||
Utilities | 1.6 | |||
U.S. Treasury Bills, Money Market Funds Plus Other Assets Less Liabilities | 2.5 |
Top 10 Equity Holdings*
1. | Exxon Mobil Corp. | 4.8 | % | |||||||||||||
2. | Procter & Gamble Co. | 3.8 | ||||||||||||||
3. | Microsoft Corp. | 3.8 | ||||||||||||||
4. | AT&T Inc. | 3.7 | ||||||||||||||
5. | International Business Machines Corp. | 3.6 | ||||||||||||||
6. | Chevron Corp. | 2.9 | ||||||||||||||
7. | Apple Inc. | 2.9 | ||||||||||||||
8. | Wal-Mart Stores, Inc. | 2.5 | ||||||||||||||
9. | American Express Co. | 2.4 | ||||||||||||||
10. | Hewlett-Packard Co. | 2.4 |
Total Net Assets | $84.6 million | |
Total Number of Holdings* | 77 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Structured Core Fund |
Table of Contents
All sectors — aside from financials — posted positive performance for the reporting period as equity markets rallied through the first quarter of 2010 and in July 2010. All investment styles posted positive returns, with mid-cap stocks generally outperforming large-cap stocks and growth stocks generally outpacing value stocks for the period.
Regarding the results of the Invesco Structured Core Fund, it’s important to understand our investment process to better evaluate the drivers of our relative performance versus the benchmark. We generally evaluate performance based on the effect of our stock selection and risk management process.
Our stock selection model, based on the four factors (company earnings momentum, price trend, management action and relative value) that make up our alpha (excess return) forecast for stocks in our investment universe, was a detractor from Fund performance. However, when selecting Fund holdings we also take into account our risk and transaction cost forecasts. We use our optimization software to assist in making investment decisions, based on risk and transaction cost forecasts, as well as our alpha forecast. Consequently, while our stock selection model may identify a stock with an attractive alpha forecast, the optimizer may indicate that its transaction costs are too high and/or its risk level is unacceptable. Placing more of an emphasis on transaction costs and potential risk in making stock selections may benefit or detract from Fund performance. For the fiscal year, it augmented our results.
Sectors that generated positive returns over the Fund’s fiscal year included consumer staples, consumer discretionary, materials and telecommunication services. Stock selection within the financial sector was also a contributor. The health care, industrials, information technology (IT) and utilities sectors detracted from overall performance.
From an individual stock perspective, Ford, RadioShack and Home Depot were top contributors within the consumer discretionary sector. RadioShack is no longer held by the Fund. In August 2010, Ford completed the sale of its Swedish Volvo Car unit and related assets to China’s Zhejiang Geely Holding Group (not a Fund holding).
Fund holdings in the health care sector, such as Pfizer and Amgen detracted from performance. On Oct. 15, 2009, Pfizer completed its acquisition of Wyeth. In December 2009, Durata Therapeutics acquired Vicuron Pharmaceuticals from Pfizer. Wyeth, Durata Therapuetics and Vicuron Pharmaceuticals are not Fund
holdings. Fund holdings in IT, such as Hewlett-Packard, also detracted from performance. The CEO of Hewlett-Packard resigned at the end of the reporting period.
The Fund’s investment model underperformed the benchmark index due to the absence of an established trend in favor of our stock selection factors. During the reporting period, our model had limited predictive ability because our highest-ranked stocks underperformed our lowest-ranked stocks. The sharp sell-off in the stock market created particular challenges for our price trend model since the positive trend established in March 2009 reversed significantly over the past few months. On a positive note, companies that were attractively priced based on earnings potential outperformed their peers in August, which partly offset weakness in the investment model. As part of implementing this strategy, the Fund may use derivatives, such as futures contracts to better manage our market exposure. The use of derivatives during the period was successful.
While the global economy appeared more stable entering 2010 than it did the prior year, forecasting the future direction of the economy remains extremely challenging. The bursting of the U.S. housing bubble, rising unemployment and increasing taxation may likely impede future economic growth, while massive fiscal and monetary stimulus may promote economic growth.
In a world of moderate but positive economic growth, low inflation and prolonged government liquidity support, we believe the potential for equities may exist. Additionally, valuations remain reasonable by historical standards, especially after the pullback during the second quarter of 2010.
We welcome new investors who joined the Fund during the fiscal year and would like to thank all of our shareholders for your investment in Invesco Structured Core Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Ralph Coutant
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Core Fund. Mr. Coutant joined Invesco in 1999. He earned a B.S. in business administration from the University of New Hampshire.
Lawson McWhorter
Portfolio manager, is manager of Invesco Structured Core Fund. Mr. McWhorter joined Invesco in 2005. He began his investment career in 1994. Mr. McWhorter earned a B.A. with cum laude honors from Davidson College. He is a Chartered Market Technician.
Glen Murphy
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Core Fund. Mr. Murphy joined Invesco in 1995. He earned a B.A. in business administration from the University of Massachusetts at Amherst and an M.S. in finance from Boston College.
Anthony Shufflebotham
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Core Fund. Mr. Shufflebotham joined Invesco in 1998. He earned a B.S. in economics, accounting and finance from Oxford Brookes University and an M.S. in finance from Boston College.
Anne Unflat
Portfolio manager, is manager of Invesco Structured Core Fund. Ms. Unflat began her investment career in 1988. She graduated magna cum laude from Queens College with a B.A. in economics. She earned an M.B.A. in finance from St. John’s University.
5 | Invesco Structured Core Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund and Index data from 3/31/06
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index
results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
6 | Invesco Structured Core Fund |
Table of Contents
Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||||
Inception (3/31/06) | -5.76 | % | ||||
1 | Year | -6.56 | ||||
Class B Shares | ||||||
Inception (3/31/06) | -5.57 | % | ||||
1 | Year | -6.73 | ||||
Class C Shares | ||||||
Inception (3/31/06) | -5.23 | % | ||||
1 | Year | -2.82 | ||||
Class R Shares | ||||||
Inception (3/31/06) | -4.75 | % | ||||
1 | Year | -1.30 | ||||
Class Y Shares | ||||||
Inception | -4.39 | % | ||||
1 | Year | -0.85 | ||||
Investor Class Shares | ||||||
Inception | -4.48 | % | ||||
1 | Year | -1.07 | ||||
Institutional Class Shares | ||||||
Inception (3/31/06) | -4.27 | % | ||||
1 | Year | -0.83 |
Class Y shares incepted on October 3, 2008. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
Investor Class shares incepted on April 25, 2008. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||
Inception (3/31/06) | -6.05 | % | ||||
1 | Year | 3.41 | ||||
Class B Shares | ||||||
Inception (3/31/06) | -5.82 | % | ||||
1 | Year | 3.56 | ||||
Class C Shares | ||||||
Inception (3/31/06) | -5.50 | % | ||||
1 | Year | 7.39 | ||||
Class R Shares | ||||||
Inception (3/31/06) | -5.00 | % | ||||
1 | Year | 9.04 | ||||
Class Y Shares | ||||||
Inception | -4.67 | % | ||||
1 | Year | 9.65 | ||||
Investor Class Shares | ||||||
Inception | -4.76 | % | ||||
1 | Year | 9.40 | ||||
Institutional Class Shares | ||||||
Inception (3/31/06) | -4.51 | % | ||||
1 | Year | -9.65 |
recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares was 1.01%, 1.76%, 1.76%, 1.26%, 0.76%, 1.01%, and 0.76%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares was 1.30, 2.05%, 2.05%, 1.55%, 1.05%, 1.30% and 0.90%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class R, Class Y, Investor Class and Institutional
Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least December 31, 2011. See current prospectus for more information. |
7 | Invesco Structured Core Fund |
Table of Contents
Invesco Structured Core Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available only to certain investors. Please see the prospectus for more information. | |
n | All Investor Class shares are closed to new investors. Contact your financial adviser about purchasing other share classes. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. | |
n | Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. | |
n | The Fund’s foreign investments may be affected by changes in the foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. | |
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. | |
n | Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities. | |
n | The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk — the risk that the other party will not complete the transaction with the Fund. | |
n | The Fund may invest a large percent-age of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. | |
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. |
n | The Lipper Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core funds tracked by Lipper. |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
n | Industry classifications used in this report are generally organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | SCAUX | |
Class B Shares | SBCUX | |
Class C Shares | SCCUX | |
Class R Shares | SCRUX | |
Class Y Shares | SCAYX | |
Investor Class Shares | SCNUX | |
Institutional Class Shares | SCIUX |
8 | Invesco Structured Core Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks–97.48% | ||||||||
Airlines–0.37% | ||||||||
Delta Air Lines, Inc.(b) | 30,200 | $ | 315,892 | |||||
Apparel Retail–1.37% | ||||||||
Gap, Inc. (The) | 68,700 | 1,160,343 | ||||||
Apparel, Accessories & Luxury Goods–0.55% | ||||||||
Jones Apparel Group, Inc. | 30,000 | 461,400 | ||||||
Auto Parts & Equipment–0.12% | ||||||||
Magna International Inc. (Canada) | 1,300 | 101,101 | ||||||
Automobile Manufacturers–2.30% | ||||||||
Ford Motor Co.(b) | 172,100 | 1,943,009 | ||||||
Biotechnology–2.37% | ||||||||
Amgen Inc.(b) | 39,300 | 2,005,872 | ||||||
Cable & Satellite–0.13% | ||||||||
Comcast Corp.–Class A | 6,200 | 106,144 | ||||||
Casinos & Gaming–0.29% | ||||||||
Las Vegas Sands Corp.(b) | 8,600 | 243,638 | ||||||
Communications Equipment–0.19% | ||||||||
Tellabs, Inc. | 22,200 | 157,620 | ||||||
Computer Hardware–5.52% | ||||||||
Apple Inc.(b) | 10,100 | 2,458,037 | ||||||
Dell Inc.(b) | 16,100 | 189,497 | ||||||
Hewlett-Packard Co. | 52,500 | 2,020,200 | ||||||
4,667,734 | ||||||||
Computer Storage & Peripherals–3.41% | ||||||||
Lexmark International, Inc.–Class A(b) | 32,700 | 1,144,173 | ||||||
SanDisk Corp.(b) | 37,800 | 1,256,472 | ||||||
Seagate Technology (Ireland)(b) | 47,500 | 481,175 | ||||||
2,881,820 | ||||||||
Construction, Farm Machinery & Heavy Trucks–0.99% | ||||||||
Joy Global Inc. | 3,300 | 187,242 | ||||||
Oshkosh Corp.(b) | 26,000 | 646,880 | ||||||
834,122 | ||||||||
Consumer Finance–4.05% | ||||||||
American Express Co. | 50,800 | 2,025,396 | ||||||
Capital One Financial Corp. | 36,900 | 1,397,034 | ||||||
3,422,430 | ||||||||
Data Processing & Outsourced Services–0.55% | ||||||||
Visa Inc.–Class A | 6,700 | 462,166 | ||||||
Department Stores–1.98% | ||||||||
Macy’s, Inc. | 86,200 | 1,675,728 | ||||||
Diversified Banks–1.24% | ||||||||
Wells Fargo & Co. | 44,700 | 1,052,685 | ||||||
Diversified Metals & Mining–2.65% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 14,200 | 1,022,116 | ||||||
Titanium Metals Corp.(b) | 67,200 | 1,217,664 | ||||||
2,239,780 | ||||||||
Education Services–0.40% | ||||||||
Career Education Corp.(b) | 19,400 | 340,082 | ||||||
Electronic Manufacturing Services–0.64% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 110,500 | 544,765 | ||||||
Footwear–0.56% | ||||||||
Crocs, Inc.(b) | 37,800 | 472,500 | ||||||
General Merchandise Stores–0.50% | ||||||||
Target Corp. | 8,300 | 424,628 | ||||||
Health Care Distributors–0.12% | ||||||||
Cardinal Health, Inc. | 3,500 | 104,860 | ||||||
Home Improvement Retail–0.95% | ||||||||
Home Depot, Inc. (The) | 28,900 | 803,709 | ||||||
Homebuilding–3.06% | ||||||||
D.R. Horton, Inc. | 144,000 | 1,477,440 | ||||||
Lennar Corp.–Class A | 84,600 | 1,114,182 | ||||||
2,591,622 | ||||||||
Household Products–3.79% | ||||||||
Procter & Gamble Co. (The) | 53,700 | 3,204,279 | ||||||
Hypermarkets & Super Centers–2.54% | ||||||||
Wal-Mart Stores, Inc. | 42,900 | 2,151,006 | ||||||
Independent Power Producers & Energy Traders–1.56% | ||||||||
Constellation Energy Group Inc. | 45,000 | 1,319,850 | ||||||
Industrial Conglomerates–0.69% | ||||||||
General Electric Co. | 40,300 | 583,544 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Shares | Value | |||||||
Industrial Machinery–0.68% | ||||||||
Illinois Tool Works Inc. | 6,300 | $ | 259,938 | |||||
Ingersoll-Rand PLC (Ireland) | 1,400 | 45,542 | ||||||
Parker Hannifin Corp. | 4,500 | 266,220 | ||||||
571,700 | ||||||||
Integrated Oil & Gas–10.67% | ||||||||
Chevron Corp. | 33,600 | 2,491,776 | ||||||
ConocoPhillips | 26,100 | 1,368,423 | ||||||
Exxon Mobil Corp. | 68,600 | 4,058,376 | ||||||
Occidental Petroleum Corp. | 15,100 | 1,103,508 | ||||||
9,022,083 | ||||||||
Integrated Telecommunication Services–4.64% | ||||||||
AT&T Inc. | 115,600 | 3,124,668 | ||||||
Verizon Communications Inc. | 27,100 | 799,721 | ||||||
3,924,389 | ||||||||
Internet Software & Services–0.21% | ||||||||
Akamai Technologies, Inc.(b) | 1,000 | 46,070 | ||||||
AOL Inc.(b) | 6,100 | 135,542 | ||||||
181,612 | ||||||||
IT Consulting & Other Services–3.57% | ||||||||
International Business Machines Corp. | 24,500 | 3,019,135 | ||||||
Life & Health Insurance–2.65% | ||||||||
Aflac, Inc. | 16,200 | 765,450 | ||||||
Prudential Financial, Inc. | 29,200 | 1,476,644 | ||||||
2,242,094 | ||||||||
Managed Health Care–3.94% | ||||||||
Humana Inc.(b) | 27,600 | 1,319,004 | ||||||
UnitedHealth Group Inc. | 63,400 | 2,011,048 | ||||||
3,330,052 | ||||||||
Movies & Entertainment–2.02% | ||||||||
Time Warner Inc. | 57,000 | 1,708,860 | ||||||
Multi-Line Insurance–0.44% | ||||||||
Assurant, Inc. | 10,100 | 369,256 | ||||||
Oil & Gas Equipment & Services–1.78% | ||||||||
National Oilwell Varco Inc. | 40,100 | 1,507,359 | ||||||
Other Diversified Financial Services–0.08% | ||||||||
JPMorgan Chase & Co. | 1,800 | 65,448 | ||||||
Packaged Foods & Meats–0.14% | ||||||||
Tyson Foods, Inc.–Class A | 7,300 | 119,574 | ||||||
Paper Products–1.83% | ||||||||
International Paper Co. | 67,900 | 1,389,234 | ||||||
MeadWestvaco Corp. | 7,200 | 156,672 | ||||||
1,545,906 | ||||||||
Pharmaceuticals–6.38% | ||||||||
Bristol-Myers Squibb Co. | 6,700 | 174,736 | ||||||
Eli Lilly and Co. | 54,000 | 1,812,240 | ||||||
Forest Laboratories, Inc.(b) | 10,000 | 272,900 | ||||||
Johnson & Johnson | 29,800 | 1,699,196 | ||||||
Pfizer Inc. | 90,100 | 1,435,293 | ||||||
5,394,365 | ||||||||
Property & Casualty Insurance–4.19% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 14,500 | 1,142,310 | ||||||
Travelers Cos., Inc. (The) | 23,000 | 1,126,540 | ||||||
XL Group PLC (Ireland) | 71,000 | 1,271,610 | ||||||
3,540,460 | ||||||||
Publishing–1.67% | ||||||||
Gannett Co., Inc. | 107,000 | 1,293,630 | ||||||
McGraw-Hill Cos., Inc. (The) | 4,300 | 118,895 | ||||||
1,412,525 | ||||||||
Regional Banks–0.76% | ||||||||
Fifth Third Bancorp | 32,800 | 362,440 | ||||||
PNC Financial Services Group, Inc. | 5,500 | 280,280 | ||||||
642,720 | ||||||||
Semiconductors–2.39% | ||||||||
Intel Corp. | 46,400 | 822,208 | ||||||
Micron Technology, Inc.(b) | 185,200 | 1,197,318 | ||||||
2,019,526 | ||||||||
Systems Software–3.78% | ||||||||
Microsoft Corp. | 136,200 | 3,197,976 | ||||||
Tobacco–2.15% | ||||||||
Philip Morris International Inc. | 35,300 | 1,815,832 | ||||||
Wireless Telecommunication Services–0.62% | ||||||||
Sprint Nextel Corp.(b) | 129,600 | 528,768 | ||||||
Total Common Stocks (Cost $81,649,400) | 82,431,969 | |||||||
Principal | ||||||||
Amount | ||||||||
U.S. Treasury Bills–0.47% | ||||||||
0.08%, 09/16/10 (Cost $399,987)(c)(d) | $ | 400,000 | 399,987 | |||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Shares | Value | |||||||
Money Market Funds–1.87% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 790,367 | $ | 790,367 | |||||
Premier Portfolio–Institutional Class(e) | 790,367 | 790,367 | ||||||
Total Money Market Funds (Cost $1,580,734) | 1,580,734 | |||||||
TOTAL INVESTMENTS–99.82% (Cost $83,630,121) | 84,412,690 | |||||||
OTHER ASSETS LESS LIABILITIES–0.18% | 150,038 | |||||||
NET ASSETS–100.00% | $ | 84,562,728 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $82,049,387) | $ | 82,831,956 | ||
Investments in affiliated money market funds, at value and cost | 1,580,734 | |||
Total investments, at value (Cost $83,630,121) | 84,412,690 | |||
Receivables for: | ||||
Variation margin | 6,375 | |||
Fund shares sold | 17,772 | |||
Dividends | 246,627 | |||
Fund expenses absorbed | 19,066 | |||
Investment for trustee deferred compensation and retirement plans | 16,697 | |||
Other assets | 29,141 | |||
Total assets | 84,748,368 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 9,108 | |||
Accrued fees to affiliates | 89,626 | |||
Accrued other operating expenses | 51,258 | |||
Trustee deferred compensation and retirement plans | 35,648 | |||
Total liabilities | 185,640 | |||
Net assets applicable to shares outstanding | $ | 84,562,728 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 118,176,474 | ||
Undistributed net investment income | 1,010,448 | |||
Undistributed net realized gain (loss) | (35,333,171 | ) | ||
Unrealized appreciation | 708,977 | |||
$ | 84,562,728 | |||
Net Assets: | ||||
Class A | $ | 1,265,394 | ||
Class B | $ | 173,427 | ||
Class C | $ | 218,928 | ||
Class R | $ | 1,334,730 | ||
Class Y | $ | 142,318 | ||
Investor Class | $ | 69,634,559 | ||
Institutional Class | $ | 11,793,372 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 201,071 | |||
Class B | 27,862 | |||
Class C | 35,216 | |||
Class R | 212,853 | |||
Class Y | 22,520 | |||
Investor Class | 11,025,674 | |||
Institutional Class | 1,865,523 | |||
Class A: | ||||
Net asset value per share | $ | 6.29 | ||
Maximum offering price per share | ||||
(Net asset value of $6.29 divided by 94.50%) | $ | 6.66 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 6.22 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 6.22 | ||
Class R: | ||||
Net asset value and offering price per share | $ | 6.27 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 6.32 | ||
Investor Class: | ||||
Net asset value and offering price per share | $ | 6.32 | ||
Institutional Class: | ||||
Net asset value and offering price per share | $ | 6.32 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Dividends (net of foreign withholding taxes of $784) | $ | 2,083,861 | ||
Dividends from affiliated money market funds | 3,011 | |||
Interest | 4,264 | |||
Total investment income | 2,091,136 | |||
Expenses: | ||||
Advisory fees | 648,644 | |||
Administrative services fees | 50,000 | |||
Custodian fees | 8,264 | |||
Distribution fees: | ||||
Class A | 4,405 | |||
Class B | 1,953 | |||
Class C | 3,120 | |||
Class R | 5,098 | |||
Investor Class | 211,200 | |||
Transfer agent fees — A, B, C, R, Y and Investor | 200,799 | |||
Transfer agent fees — Institutional | 15,150 | |||
Trustees’ and officers’ fees and benefits | 23,400 | |||
Registration and filing fees | 80,027 | |||
Other | 91,865 | |||
Total expenses | 1,343,925 | |||
Less: Fees waived, expenses reimbursed and expense offset arrangement(s) | (311,070 | ) | ||
Net expenses | 1,032,855 | |||
Net investment income | 1,058,281 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 3,018,197 | |||
Futures contracts | 472,575 | |||
3,490,772 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (3,698,593 | ) | ||
Futures contracts | (329,253 | ) | ||
(4,027,846 | ) | |||
Net realized and unrealized gain (loss) | (537,074 | ) | ||
Net increase in net assets resulting from operations | $ | 521,207 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the years ended August 31, 2010 and 2009
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,058,281 | $ | 2,056,728 | ||||
Net realized gain (loss) | 3,490,772 | (36,093,131 | ) | |||||
Change in net unrealized appreciation (depreciation) | (4,027,846 | ) | 1,575,545 | |||||
Net increase (decrease) in net assets resulting from operations | 521,207 | (32,460,858 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Class A | (34,312 | ) | (19,375 | ) | ||||
Class B | (1,066 | ) | (2,573 | ) | ||||
Class C | (1,841 | ) | (12,547 | ) | ||||
Class R | (11,562 | ) | (451 | ) | ||||
Class Y | (4,053 | ) | (2,630 | ) | ||||
Investor Class | (1,552,566 | ) | (824,995 | ) | ||||
Institutional Class | (446,319 | ) | (224,782 | ) | ||||
Total distributions from net investment income | (2,051,719 | ) | (1,087,353 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Class A | — | (370,361 | ) | |||||
Class B | — | (62,258 | ) | |||||
Class C | — | (303,605 | ) | |||||
Class R | — | (9,308 | ) | |||||
Class Y | — | (47,948 | ) | |||||
Investor Class | — | (15,770,612 | ) | |||||
Institutional Class | — | (3,572,911 | ) | |||||
Total distributions from net realized gains | — | (20,137,003 | ) | |||||
Share transactions–net: | ||||||||
Class A | (342,045 | ) | 1,091,808 | |||||
Class B | (35,338 | ) | 127,039 | |||||
Class C | (31,677 | ) | 369,562 | |||||
Class R | 1,396,013 | 37,691 | ||||||
Class Y | (67,812 | ) | 283,846 | |||||
Investor Class | (17,874,581 | ) | (4,831,505 | ) | ||||
Institutional Class | (10,123,792 | ) | 2,149,035 | |||||
Net increase (decrease) in net assets resulting from share transactions | (27,079,232 | ) | (772,524 | ) | ||||
Net increase (decrease) in net assets | (28,609,744 | ) | (54,457,738 | ) | ||||
Net assets: | ||||||||
Beginning of year | 113,172,472 | 167,630,210 | ||||||
End of year (includes undistributed net investment income of $1,010,448 and $2,006,339, respectively) | $ | 84,562,728 | $ | 113,172,472 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Structured Core Fund, formerly AIM Structured Core Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently consists of seven different classes of shares: Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class. Investor Class shares of the Fund are offered only to certain grandfathered investors. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y, Investor Class and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. |
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B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
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J. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .60% | ||
Next $250 million | 0 | .575% | ||
Next $500 million | 0 | .55% | ||
Next $1.5 billion | 0 | .525% | ||
Next $2.5 billion | 0 | .50% | ||
Next $2.5 billion | 0 | .475% | ||
Next $2.5 billion | 0 | .45% | ||
Over $10 billion | 0 | .425% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least December 31, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares to 1.00%, 1.75%, 1.75%, 1.25%, 0.75%, 1.00% and 0.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on December 31, 2011.
��Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended August 31, 2010, the Adviser waived advisory fees $94,972 and reimbursed class level expenses of $4,003, $443, $709, $2,316, $431, $191,907 and $15,150 of Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares, respectively.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended August 31, 2010, Invesco Ltd. reimbursed expenses of the Fund in the amount of $150.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B, Class C, Class R and Investor Class shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended August 31, 2010, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance
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to the shareholder. During the year ended August 31, 2010, IDI advised the Fund that IDI retained $817 in front-end sales commissions from the sale of Class A shares and $0, $18 and $45 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 84,012,703 | $ | — | $ | — | $ | 84,012,703 | ||||||||
U.S. Treasury Securities | — | 399,987 | — | 399,987 | ||||||||||||
$ | 84,012,703 | $ | 399,987 | $ | — | $ | 84,412,690 | |||||||||
Futures* | — | (73,592 | ) | — | (73,592 | ) | ||||||||||
Total Investments | $ | 84,012,703 | $ | 326,395 | $ | — | $ | 84,339,098 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Market risk | ||||||||
Futures contracts(a) | $ | — | $ | (73,592 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
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Effect of Derivative Instruments for the year ended August 31, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Market risk | $ | 472,575 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Market risk | (329,253 | ) | ||
Total | $ | 143,322 | ||
* | The average value of futures outstanding during the period was $2,563,610. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
Chicago Mercantile Exchange E-Mini S&P 500 Index | 36 | September-2010/Long | $ | 1,886,940 | $ | (73,592 | ) | |||||||||
NOTE 5—Expense Offset Arrangement(s)
The expense offset arrangements is comprised of transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions. For the year ended August 31, 2010, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $989.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended August 31, 2010, the Fund paid legal fees of $2,985 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 2,051,719 | $ | 1,093,885 | ||||
Long-term capital gain | — | 20,130,471 | ||||||
Total distributions | $ | 2,051,719 | $ | 21,224,356 | ||||
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Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 1,045,777 | ||
Net unrealized appreciation — investments | 243,267 | |||
Temporary book/tax differences | (35,329 | ) | ||
Post-October deferrals | (514,041 | ) | ||
Capital loss carryforward | (34,353,420 | ) | ||
Shares of beneficial interest | 118,176,474 | |||
Total net assets | $ | 84,562,728 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 9,871,752 | ||
August 31, 2018 | 24,481,668 | |||
Total capital loss carryforward | $ | 34,353,420 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $73,742,858 and $99,457,051, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 7,051,573 | ||
Aggregate unrealized (depreciation) of investment securities | (6,808,306 | ) | ||
Net unrealized appreciation of investment securities | $ | 243,267 | ||
Cost of investments for tax purposes is $84,169,423. |
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of Real Estate Investment Trust distributions, on August 31, 2010, undistributed net investment income was decreased by $2,453 and undistributed net realized gain (loss) was increased by $2,453. This reclassification had no effect on the net assets of the Fund.
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NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended August 31, | ||||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 128,789 | $ | 869,022 | 441,071 | $ | 2,793,780 | ||||||||||
Class B | 5,802 | 38,360 | 50,732 | 325,326 | ||||||||||||
Class C | 19,734 | 129,647 | 311,615 | 2,058,767 | ||||||||||||
Class R | 208,043 | 1,443,352 | 7,372 | 43,440 | ||||||||||||
Class Y(b) | 1,829 | 12,203 | 38,159 | 313,750 | ||||||||||||
Investor Class | 1,072,097 | 7,343,739 | 1,882,307 | 11,430,231 | ||||||||||||
Institutional Class | 176,429 | 1,207,236 | 627,262 | 3,748,959 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | 4,968 | 33,784 | 68,237 | 384,176 | ||||||||||||
Class B | 157 | 1,066 | 11,638 | 64,826 | ||||||||||||
Class C | 262 | 1,773 | 56,301 | 313,598 | ||||||||||||
Class R | 1,703 | 11,562 | 1,736 | 9,759 | ||||||||||||
Class Y | 594 | 4,053 | 8,968 | 50,578 | ||||||||||||
Investor Class | 221,069 | 1,509,898 | 2,840,248 | 16,047,399 | ||||||||||||
Institutional Class | 65,443 | 446,320 | 673,350 | 3,797,693 | ||||||||||||
Automatic conversion of Class B shares to Class A shares: | ||||||||||||||||
Class A | 2,729 | 18,856 | 5,525 | 31,109 | ||||||||||||
Class B | (2,755 | ) | (18,856 | ) | (5,596 | ) | (31,109 | ) | ||||||||
Reacquired: | ||||||||||||||||
Class A(b) | (185,339 | ) | (1,263,707 | ) | (361,111 | ) | (2,117,257 | ) | ||||||||
Class B | (8,460 | ) | (55,908 | ) | (40,515 | ) | (232,004 | ) | ||||||||
Class C | (24,579 | ) | (163,097 | ) | (353,556 | ) | (2,002,803 | ) | ||||||||
Class R | (8,840 | ) | (58,901 | ) | (2,550 | ) | (15,508 | ) | ||||||||
Class Y | (12,379 | ) | (84,068 | ) | (14,651 | ) | (80,482 | ) | ||||||||
Investor Class(b) | (3,918,195 | ) | (26,728,218 | ) | (4,899,493 | ) | (32,309,135 | ) | ||||||||
Institutional Class | (1,779,103 | ) | (11,777,348 | ) | (863,365 | ) | (5,397,617 | ) | ||||||||
Net increase (decrease) in share activity | (4,030,002 | ) | $ | (27,079,232 | ) | 483,684 | $ | (772,524 | ) | |||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 14% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Effective upon the commencement date of Class Y shares, October 3, 2008, the following shares were converted from Class A and Investor Class shares into Class Y shares of the Fund: |
Class Shares | Amount | |||||||
Class Y | 35,513 | $ | 294,403 | |||||
Class A | (2,881 | ) | (23,882 | ) | ||||
Investor Class | (32,593 | ) | (270,521 | ) | ||||
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | $ | 6.47 | $ | 0.06 | (c) | $ | (0.12 | ) | $ | (0.06 | ) | $ | (0.12 | ) | $ | — | $ | (0.12 | ) | $ | 6.29 | (1.07 | )% | $ | 1,265 | 1.00 | %(d) | 1.31 | %(d) | 0.93 | %(d) | 71 | % | |||||||||||||||||||||||
Year ended 08/31/09 | 9.89 | 0.11 | (c) | (2.16 | ) | (2.05 | ) | (0.07 | ) | (1.30 | ) | (1.37 | ) | 6.47 | (18.66 | ) | 1,618 | 0.66 | 1.29 | 1.85 | 77 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.19 | 0.14 | (c) | (1.37 | ) | (1.23 | ) | (0.02 | ) | (0.05 | ) | (0.07 | ) | 9.89 | (11.03 | ) | 951 | 0.75 | 1.93 | 1.34 | 118 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.19 | 0.08 | (c) | 1.10 | 1.18 | (0.18 | ) | — | (0.18 | ) | 11.19 | 11.60 | 1,532 | 1.02 | 6.88 | 0.67 | 79 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.04 | 0.15 | 0.19 | — | — | — | 10.19 | 1.90 | 985 | 1.06 | (f) | 10.44 | (f) | 0.95 | (f) | 25 | |||||||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.37 | 0.01 | (c) | (0.13 | ) | (0.12 | ) | (0.03 | ) | — | (0.03 | ) | 6.22 | (1.85 | ) | 173 | 1.75 | (d) | 2.06 | (d) | 0.18 | (d) | 71 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.79 | 0.06 | (c) | (2.13 | ) | (2.07 | ) | (0.05 | ) | (1.30 | ) | (1.35 | ) | 6.37 | (19.10 | ) | 211 | 1.41 | 2.04 | 1.10 | 77 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.14 | 0.06 | (c) | (1.36 | ) | (1.30 | ) | — | (0.05 | ) | (0.05 | ) | 9.79 | (11.71 | ) | 165 | 1.50 | 2.68 | 0.59 | 118 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.16 | (0.01 | )(c) | 1.10 | 1.09 | (0.11 | ) | — | (0.11 | ) | 11.14 | 10.74 | 847 | 1.77 | 7.63 | (0.08 | ) | 79 | ||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.01 | 0.15 | 0.16 | — | — | — | 10.16 | 1.60 | 640 | 1.81 | (f) | 11.19 | (f) | 0.20 | (f) | 25 | |||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.37 | 0.01 | (c) | (0.13 | ) | (0.12 | ) | (0.03 | ) | — | (0.03 | ) | 6.22 | (1.85 | ) | 219 | 1.75 | (d) | 2.06 | (d) | 0.18 | (d) | 71 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.79 | 0.06 | (c) | (2.13 | ) | (2.07 | ) | (0.05 | ) | (1.30 | ) | (1.35 | ) | 6.37 | (19.10 | ) | 254 | 1.41 | 2.04 | 1.10 | 77 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.14 | 0.06 | (c) | (1.36 | ) | (1.30 | ) | — | (0.05 | ) | (0.05 | ) | 9.79 | (11.71 | ) | 249 | 1.50 | 2.68 | 0.59 | 118 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.16 | (0.01 | )(c) | 1.10 | 1.09 | (0.11 | ) | — | (0.11 | ) | 11.14 | 10.74 | 1,043 | 1.77 | 7.63 | (0.08 | ) | 79 | ||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.01 | 0.15 | 0.16 | — | — | — | 10.16 | 1.60 | 625 | 1.81 | (f) | 11.19 | (f) | 0.20 | (f) | 25 | |||||||||||||||||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.45 | 0.05 | (c) | (0.12 | ) | (0.07 | ) | (0.11 | ) | — | (0.11 | ) | 6.27 | (1.30 | ) | 1,335 | 1.25 | (d) | 1.56 | (d) | 0.68 | (d) | 71 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.86 | 0.10 | (c) | (2.15 | ) | (2.05 | ) | (0.06 | ) | (1.30 | ) | (1.36 | ) | 6.45 | (18.70 | ) | 77 | 0.91 | 1.54 | 1.60 | 77 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.17 | 0.11 | (c) | (1.37 | ) | (1.26 | ) | — | (0.05 | ) | (0.05 | ) | 9.86 | (11.32 | ) | 53 | 1.00 | 2.18 | 1.09 | 118 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.18 | 0.05 | (c) | 1.10 | 1.15 | (0.16 | ) | — | (0.16 | ) | 11.17 | 11.33 | 684 | 1.27 | 7.13 | 0.42 | 79 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.03 | 0.15 | 0.18 | — | — | — | 10.18 | 1.80 | 611 | 1.31 | (f) | 10.69 | (f) | 0.70 | (f) | 25 | |||||||||||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.50 | 0.08 | (c) | (0.13 | ) | (0.05 | ) | (0.13 | ) | — | (0.13 | ) | 6.32 | (0.85 | ) | 142 | 0.75 | (d) | 1.06 | (d) | 1.18 | (d) | 71 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09(e) | 8.29 | 0.12 | (c) | (0.54 | ) | (0.42 | ) | (0.07 | ) | (1.30 | ) | (1.37 | ) | 6.50 | (2.50 | ) | 211 | 0.43 | (f) | 1.07 | (f) | 2.08 | (f) | 77 | ||||||||||||||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.50 | 0.06 | (c) | (0.12 | ) | (0.06 | ) | (0.12 | ) | — | (0.12 | ) | 6.32 | (1.07 | ) | 69,635 | 1.00 | (d) | 1.31 | (d) | 0.93 | (d) | 71 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.90 | 0.12 | (c) | (2.15 | ) | (2.03 | ) | (0.07 | ) | (1.30 | ) | (1.37 | ) | 6.50 | (18.43 | ) | 88,674 | 0.66 | 1.29 | 1.85 | 77 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08(e) | 10.73 | 0.05 | (0.88 | ) | (0.83 | ) | — | — | — | 9.90 | (7.73 | ) | 136,838 | 0.60 | (f) | 1.10 | (f) | 1.49 | (f) | 118 | ||||||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 6.50 | 0.08 | (c) | (0.12 | ) | (0.04 | ) | (0.14 | ) | — | (0.14 | ) | 6.32 | (0.83 | ) | 11,793 | 0.75 | (d) | 0.91 | (d) | 1.18 | (d) | 71 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.91 | 0.13 | (c) | (2.16 | ) | (2.03 | ) | (0.08 | ) | (1.30 | ) | (1.38 | ) | 6.50 | (18.32 | ) | 22,128 | 0.41 | 0.89 | 2.10 | 77 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.21 | 0.16 | (c) | (1.36 | ) | (1.20 | ) | (0.05 | ) | (0.05 | ) | (0.10 | ) | 9.91 | (10.79 | ) | 29,374 | 0.50 | 1.57 | 1.59 | 118 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.20 | 0.10 | (c) | 1.10 | 1.20 | (0.19 | ) | — | (0.19 | ) | 11.21 | 11.85 | 942 | 0.77 | 6.55 | 0.92 | 79 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.05 | 0.15 | 0.20 | — | — | — | 10.20 | 2.00 | 612 | 0.80 | (f) | 10.14 | (f) | 1.21 | (f) | 25 | |||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $1,762, $195, $312, $1,020, $190, $84,480 and $20,148 for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares, respectively. | |
(e) | Commencement date of March 31, 2006 for Class A, Class B, Class C, Class R and Institutional Class shares. Commencement date for October 3, 2008 and April 25, 2008 for Class Y and Investor Class shares, respectively. | |
(f) | Annualized. |
22 Invesco Structured Core Fund
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Structured Core Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Structured Core Fund (formerly known as AIM Structured Core Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
23 Invesco Structured Core Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 1,080.40 | $ | 5.24 | $ | 1,020.16 | $ | 5.09 | 1.00 | % | ||||||||||||||||||
B | 1,000.00 | 1,083.90 | 9.19 | 1,016.38 | 8.89 | 1.75 | ||||||||||||||||||||||||
C | 1,000.00 | 1,083.90 | 9.19 | 1,016.38 | 8.89 | 1.75 | ||||||||||||||||||||||||
R | 1,000.00 | 1,080.60 | 6.56 | 1,018.90 | 6.36 | 1.25 | ||||||||||||||||||||||||
Y | 1,000.00 | 1,078.70 | 3.93 | 1,021.42 | 3.82 | 0.75 | ||||||||||||||||||||||||
Investor | 1,000.00 | 1,078.70 | 5.24 | 1,020.16 | 5.09 | 1.00 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 1,078.70 | 3.93 | 1,021.42 | 3.82 | 0.75 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
24 Invesco Structured Core Fund
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Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Structured Core Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Advisers are appropriate and that Invesco Advisers currently is providing satisfactory advisory services in accordance with the terms of the Fund’s investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund’s portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
25 Invesco Structured Core Fund
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The Board noted that the Fund recently began operations and that only three calendar years of comparative performance data was available. The Board compared the Fund’s performance during the past one and three calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper Large Cap Core Funds Index. The Board noted that the performance of Class A shares of the Fund was in the fifth quintile of its performance universe for the one year period and the fourth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Class A shares of the Fund was below the performance of the Index for the one and three year periods. Invesco Advisers advised the Board that the Fund was managed consistently with its mandate and that quantitative processes, such as those followed by the Fund, are typically challenged at market inflection points. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Class A shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and Affiliated Sub-Advisers advise funds with comparable investment strategies in other jurisdictions; however, the Board did not consider comparisons of fees charged to those funds to be apt, as those fees may include more than investment management services.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provide to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to continue to waive fees and/or limit expenses of the Fund through at least December 31, 2011 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board considered the effect this fee waiver would have on the Fund’s total estimated expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the advisory fee after fee waivers and expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco
Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
26 Invesco Structured Core Fund
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% | |||
U.S. Treasury Obligations* | 0.03% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
27 Invesco Structured Core Fund
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/ completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
SCOR-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Structured Growth Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
14 | Notes to Financial Statements | |
21 | Financial Highlights | |
22 | Auditor’s Report | |
23 | Fund Expenses | |
24 | Approval of Investment Advisory and Sub-Advisory Agreements | |
26 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you fi rst, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Structured Growth Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Structured Growth Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended August 31, 2010, Class A shares of Invesco Structured Growth Fund, at net asset value (NAV), lagged the Russell 1000 Growth Index and underperformed the Lipper Large-Cap Growth Funds Index. The Fund seeks to provide long-term growth of capital by investing, normally, at least 80% of its assets in a diversified portfolio of securities of large-cap companies.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -1.86 | % | ||
Class B Shares | -2.69 | |||
Class C Shares | -2.56 | |||
Class R Shares | -2.04 | |||
Class Y Shares | -1.67 | |||
Institutional Class Shares | -1.66 | |||
S&P 500 Index▼ (Broad Market Index) | 4.93 | |||
Russell 1000 Growth Index▼(Style-Specific Index) | 6.14 | |||
Lipper Large-Cap Growth Funds Index▼ (Peer Group Index) | 4.25 | |||
▼ | Lipper Inc. |
How we invest
We manage your Fund to provide exposure to large-cap growth equity stocks. The portfolio strives to outperform the Russell 1000 Growth Index while minimizing the amount of additional risk relative to the benchmark. The Fund can be used as a long-term allocation to large cap stocks that complements other style-specific strategies within a diversified asset allocation strategy.
Our investment process integrates the following key steps:
n | Universe development | |
n | Stock rankings | |
n | Risk assessment | |
n | Portfolio construction | |
n | Trading |
While the companies included in the Russell 1000 Growth Index are used as a general guide for developing the Fund’s investable universe, non-benchmark stocks may also be considered. Each stock in the universe is evaluated on four
factors: company earnings momentum, price trend, management action and relative valuation. The scores from these four factors are combined to arrive at an overall alpha score (excess return forecast) for each stock. Each alpha score is relative to the other securities within the same industry. Stocks are also evaluated on a multitude of other factors to develop a stock-specific risk forecast and transaction cost forecast.
We then incorporate the alpha forecast, risk forecast and transaction cost forecast using an optimizer (a software tool) to build a portfolio that we believe is an optimal balance of the stocks’ potential risk and return. This portfolio is constructed according to certain constraints to increase the probability that the Fund’s relative performance and volatility remain within strategy guidelines. We continually monitor the portfolio and the overall investment process is repeated on a
monthly basis to determine which companies should be bought or sold.
In terms of risk management, we seek to minimize any style biases in the portfolio. Active managers typically add value in one of, or a combination of, four areas: beta bias (relative volatility), style bias, stock selection and sector/industry over- and underweight. We attempt to add value through our stock selection decisions. Consequently, our risk management process seeks to neutralize the Fund’s exposure relative to the benchmark with regard to beta, style and sector/industry exposures.
Market conditions and your Fund
Over the past year investors were optimistic about the prospect of an improving economy given accommodative monetary policy, fiscal stimulus and improving strength in the manufacturing sector. However, optimism turned to pessimism when there was little good news to counter the seeds of economic troubles planted in the first quarter, which were already weighing heavily on the market. Within the U.S., waning consumer confidence, worsening employment outlook and continued pressures in the financial sector confirmed that economic growth was stalling. Internationally, concerns arose from news of slowing economic growth in China and ongoing concerns about debt burdens in the southern eurozone, despite support from their northern peers. With little positive news to support the market, steady gains became steep losses.
At the beginning of the 12-month period covered by this report, riskier assets outperformed securities considered safe havens, such as U.S. Treasury securities. This trend continued through the middle of April 2010. However, renewed credit problems overseas and the market correction that occurred in May and continued into August created a
Portfolio Composition
By sector
Information Technology | 26.5 | % | ||
Consumer Discretionary | 19.7 | |||
Health Care | 15.0 | |||
Consumer Staples | 11.7 | |||
Energy | 10.3 | |||
Industrials | 5.4 | |||
Materials | 4.5 | |||
Utilities | 2.6 | |||
Financials | 1.6 | |||
Telecommunication Services | 0.9 | |||
Money Market Funds, U.S. Treasury Bills Plus Other Assets Less Liabilities | 1.8 |
Top 10 Equity Holdings*
1. | Exxon Mobil Corp. | 6.1 | % | |||||
2. | Microsoft Corp. | 5.6 | ||||||
3. | International Business Machines Corp. | 4.5 | ||||||
4. | Philip Morris International, Inc. | 4.1 | ||||||
5. | Hewlett-Packard Co. | 3.8 | ||||||
6. | Procter & Gamble Co. | 3.7 | ||||||
7. | Ford Motor Co. | 3.6 | ||||||
8. | UnitedHealth Group Inc. | 3.5 | ||||||
9. | Johnson & Johnson | 3.0 | ||||||
10. | Apple Inc. | 3.0 |
Total Net Assets | $68.3 million | |
Total Number of Holdings* | 75 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Structured Growth Fund |
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more uncertain environment — prompting many investors to favor potential safety over risk. Although recent market volatility created challenges, it also created some investment opportunities as companies with positive fundamentals became more attractively valued.
All sectors in the Russell 1000 Growth Index — aside from energy, financials, health care and utilities — posted positive performance as equity markets rallied through the fi rst quarter of 2010 and in July 2010. All investment styles posted positive returns, with mid-cap stocks generally outperforming large-cap stocks and growth stocks generally outpacing value stocks for the period.
Regarding the results of the Invesco Structured Growth Fund, it’s important to understand our investment process to better evaluate the drivers of our relative performance versus the benchmark. We generally evaluate performance based on the effect of our stock selection and risk management process.
Our stock selection model, based on the four factors (company earnings momentum, price trend, management action and relative value) that make up our alpha (excess return) forecast for stocks in our investment universe, was a detractor from Fund performance. However, when selecting Fund holdings, we also take into account our risk and transaction cost forecasts. We use our optimization software to assist in making investment decisions, based on risk and transaction cost forecasts, as well as our alpha forecast. Consequently, while our stock selection model may identify a stock with an attractive alpha forecast, the optimizer may indicate that its transaction costs are too high and/or its risk level is unacceptable. Placing more of an emphasis on transaction costs and potential risk in making stock selections may benefit or detract from Fund performance. For the fiscal year, it augmented our results.
The sectors that generated positive returns included consumer staples and health care. Additionally, stock selection within the health care sector also benefited Fund performance versus the index. The consumer discretionary, industrials and information technology (IT) sectors detracted from overall performance.
From an individual stock perspective, Valeant Pharmaceuticals International was a top contributor within the health care sector. Valeant is a multinational specialty pharmaceutical company that develops, manufactures and markets a range of pharmaceutical products. In December 2009, the company acquired
Laboratoire Dr. Renaud and a related U.S. company, followed by the acquisition of Aton Pharma in May 2010. Valeant is no longer held by the Fund.
Fund holdings in the IT sector, such as Hewlett-Packard and Seagate Technology detracted from performance. Hewlett-Packard is a global provider of products, technologies and software solutions and services. Their clients range from individual consumers to small- and medium-sized businesses as well as large enterprises covering government, health and education sectors. In April 2010, the company completed its acquisition of 3Com, followed by the acquisition of Palm in July 2010. As of the end of the reporting period, the CEO of Hewlett-Packard resigned.
The Fund’s investment model underperformed the benchmark index due to the absence of an established trend in favor of our stock selection factors. During the reporting period, our model had limited predictive ability because our highest-ranked stocks underperformed our lowest-ranked stocks. The sharp sell-off in the stock market created particular challenges for our price trend model, since the positive trend established in March 2009 reversed significantly over the past few months. On a positive note, companies that were attractively priced based on earnings potential outperformed their peers in August, which partly offset weakness in the investment model. As part of implementing this strategy, the Fund may use derivatives, such as futures contracts to better manage our market exposure. The use of derivatives during the period was successful.
While the global economy appeared more stable entering 2010 than it did the prior year, forecasting the future direction of the economy remains extremely challenging. The bursting of the U.S. housing bubble, rising unemployment and increasing taxation may likely impede future economic growth, while massive fiscal and monetary stimulus may promote economic growth.
In a world of moderate but positive economic growth, low inflation and prolonged government liquidity support, we believe the potential for equities may exist. Additionally, valuations remain reasonable by historical standards, especially after the pullback during the second quarter of 2010.
We welcome new investors who joined the Fund during the fiscal year and would like to thank all of our shareholders for your investment in Invesco Structured Growth Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Ralph Coutant
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Growth Fund. Mr. Coutant joined Invesco in 1999. He earned a B.S. in business administration from the University of New Hampshire.
Anthony Munchak
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Growth Fund. Mr. Munchak joined Invesco in 2000. He earned a B.S. and an M.S. in finance from Boston College and an M.B.A. from Bentley College.
Glen Murphy
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Growth Fund. Mr. Murphy joined Invesco in 1995. He earned a B.A. in business administration from the University of Massachusetts at Amherst and an M.S. in finance from Boston College.
Francis Orlando
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Growth Fund. Mr. Orlando began his investment career with Invesco in 1987. He earned a B.A. in business administration from Merrimack College and an M.B.A. from Boston University.
Anthony Shufflebotham
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Growth Fund. Mr. Shufflebotham joined Invesco in 1998. He earned a B.S. in economics, accounting and finance from Oxford Brookes University and an M.S. in finance from Boston College.
5 | Invesco Structured Growth Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund and index data from 3/31/06
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index
results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
6 | Invesco Structured Growth Fund |
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Average Annual Total Returns | ||||
As of 8/31/10, including maximum applicable sales charges | ||||
Class A Shares | ||||
Inception (3/31/06) | –5.88 | % | ||
1 Year | –7.23 | |||
Class B Shares | ||||
Inception (3/31/06) | –5.80 | % | ||
1 Year | –7.51 | |||
Class C Shares | ||||
Inception (3/31/06) | –5.38 | % | ||
1 Year | –3.53 | |||
Class R Shares | ||||
Inception (3/31/06) | –4.88 | % | ||
1 Year | –2.04 | |||
Class Y Shares | ||||
Inception | –4.59 | % | ||
1 Year | –1.67 | |||
Institutional Class Shares | ||||
Inception (3/31/06) | –4.42 | % | ||
1 Year | –1.66 |
Class Y shares incepted on October 3, 2008. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 1.01%, 1.76%, 1.76%, 1.26%, 0.76% and 0.75%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 1.50%, 2.25%,
Average Annual Total Returns | ||||
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges. | ||||
Class A Shares | ||||
Inception (3/31/06) | –5.94 | % | ||
1 Year | 3.19 | |||
Class B Shares | ||||
Inception (3/31/06) | –5.82 | % | ||
1 Year | 3.33 | |||
Class C Shares | ||||
Inception (3/31/06) | –5.39 | % | ||
1 Year | 7.33 | |||
Class R Shares | ||||
Inception (3/31/06) | –4.90 | % | ||
1 Year | 8.87 | |||
Class Y Shares | ||||
Inception | –4.59 | % | ||
1 Year | 9.56 | |||
Institutional Class Shares | ||||
Inception (3/31/06) | –4.42 | % | ||
1 Year | 9.55 |
2.25%, 1.75%, 1.25% and 0.86%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class R, Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
7 | Invesco Structured Growth Fund |
Table of Contents
Invesco Structured Growth Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available only to certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The Fund may engage in frequent trading of portfolio securities, which may result in added expenses, lower return and increased tax liability. | |
n | The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. | |
n | The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk — the risk that the other party will not complete the transaction with the Fund. | |
n | Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. | |
n | Growth stocks tend to be more expensive relative to their earnings or assets compared with other types of stock. As a result, they tend to be more sensitive to changes in their earnings and can be more volatile. |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. | |
n | Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities. | |
n | The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. | |
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. | |
n | The Fund’s foreign investments may be affected by changes in the foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. | |
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
n | The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. |
n | The Lipper Large-Cap Growth Funds Index is an unmanaged index considered representative of large-cap growth funds tracked by Lipper. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | AASGX | |
Class B Shares | BASGX | |
Class C Shares | CASGX | |
Class R Shares | RASGX | |
Class Y Shares | AASYX | |
Institutional Class Shares | IASGX |
8 | Invesco Structured Growth Fund |
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Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks–98.21% | ||||||||
Agricultural Products–0.05% | ||||||||
Archer-Daniels-Midland Co. | 1,100 | $ | 33,858 | |||||
Airlines–0.61% | ||||||||
Alaska Air Group, Inc.(b) | 9,400 | 415,762 | ||||||
Apparel Retail–1.86% | ||||||||
Collective Brands, Inc.(b) | 10,400 | 134,472 | ||||||
Gap, Inc. (The) | 53,600 | 905,304 | ||||||
Limited Brands, Inc. | 9,700 | 228,920 | ||||||
1,268,696 | ||||||||
Apparel, Accessories & Luxury Goods–0.23% | ||||||||
Jones Apparel Group, Inc. | 10,200 | 156,876 | ||||||
Auto Parts & Equipment–2.94% | ||||||||
Federal-Mogul Corp.(b) | 2,000 | 30,590 | ||||||
TRW Automotive Holdings Corp.(b) | 57,000 | 1,981,320 | ||||||
2,011,910 | ||||||||
Automobile Manufacturers–3.59% | ||||||||
Ford Motor Co.(b) | 217,200 | 2,452,188 | ||||||
Biotechnology–2.72% | ||||||||
Amgen Inc.(b) | 34,700 | 1,771,088 | ||||||
PDL BioPharma Inc. | 15,400 | 87,164 | ||||||
1,858,252 | ||||||||
Casinos & Gaming–0.39% | ||||||||
Las Vegas Sands Corp.(b) | 9,400 | 266,302 | ||||||
Communications Equipment–0.80% | ||||||||
InterDigital, Inc.(b) | 11,700 | 289,224 | ||||||
Tellabs, Inc. | 35,900 | 254,890 | ||||||
544,114 | ||||||||
Computer Hardware–6.78% | ||||||||
Apple Inc.(b) | 8,450 | 2,056,476 | ||||||
Hewlett-Packard Co. | 67,000 | 2,578,160 | ||||||
4,634,636 | ||||||||
Computer Storage & Peripherals–4.51% | ||||||||
Lexmark International, Inc.–Class A(b) | 14,200 | 496,858 | ||||||
SanDisk Corp.(b) | 43,400 | 1,442,616 | ||||||
Seagate Technology (Ireland)(b) | 113,000 | 1,144,690 | ||||||
3,084,164 | ||||||||
Construction & Engineering–0.35% | ||||||||
KBR, Inc. | 5,200 | 120,640 | ||||||
Shares | ||||||||
URS Corp.(b) | 3,300 | 117,711 | ||||||
238,351 | ||||||||
Construction, Farm Machinery & Heavy Trucks–2.44% | ||||||||
Joy Global Inc. | 9,100 | 516,334 | ||||||
Oshkosh Corp.(b) | 46,300 | 1,151,944 | ||||||
1,668,278 | ||||||||
Consumer Electronics–2.36% | ||||||||
Garmin Ltd. | 60,700 | 1,615,227 | ||||||
Consumer Finance–1.14% | ||||||||
American Express Co. | 19,500 | 777,465 | ||||||
Department Stores–0.75% | ||||||||
Macy’s, Inc. | 26,300 | 511,272 | ||||||
Diversified Metals & Mining–2.88% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 7,700 | 554,246 | ||||||
Titanium Metals Corp.(b) | 77,900 | 1,411,548 | ||||||
1,965,794 | ||||||||
Education Services–0.53% | ||||||||
Career Education Corp.(b) | 20,500 | 359,365 | ||||||
Electrical Components & Equipment–0.08% | ||||||||
General Cable Corp.(b) | 2,500 | 55,625 | ||||||
Electronic Components–0.21% | ||||||||
Vishay Intertechnology, Inc.(b) | 18,900 | 145,341 | ||||||
Health Care Distributors–0.73% | ||||||||
Cardinal Health, Inc. | 16,600 | 497,336 | ||||||
Homebuilding–1.45% | ||||||||
D.R. Horton, Inc. | 63,300 | 649,458 | ||||||
Lennar Corp.–Class A | 25,900 | 341,103 | ||||||
990,561 | ||||||||
Homefurnishing Retail–2.89% | ||||||||
Williams-Sonoma, Inc. | 76,200 | 1,978,152 | ||||||
Household Products–3.70% | ||||||||
Procter & Gamble Co. (The) | 42,400 | 2,530,008 | ||||||
Housewares & Specialties–0.41% | ||||||||
American Greetings Corp.–Class A | 14,500 | 279,850 | ||||||
Hypermarkets & Super Centers–2.22% | ||||||||
Wal-Mart Stores, Inc. | 30,200 | 1,514,228 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Structured Growth Fund
Table of Contents
Shares | Value | |||||||
Independent Power Producers & Energy Traders–2.59% | ||||||||
Constellation Energy Group Inc. | 60,400 | $ | 1,771,532 | |||||
Industrial Conglomerates–1.44% | ||||||||
3M Co. | 2,200 | 172,810 | ||||||
Carlisle Cos. Inc. | 3,500 | 98,175 | ||||||
General Electric Co. | 49,400 | 715,312 | ||||||
986,297 | ||||||||
Industrial Machinery–0.51% | ||||||||
Parker Hannifin Corp. | 5,900 | 349,044 | ||||||
Integrated Oil & Gas–9.61% | ||||||||
Chevron Corp. | 21,600 | 1,601,856 | ||||||
ConocoPhillips | 15,800 | 828,394 | ||||||
Exxon Mobil Corp. | 69,900 | 4,135,284 | ||||||
6,565,534 | ||||||||
Integrated Telecommunication Services–0.77% | ||||||||
AT&T Inc. | 19,600 | 529,788 | ||||||
Internet Software & Services–1.08% | ||||||||
Akamai Technologies, Inc.(b) | 12,000 | 552,840 | ||||||
AOL Inc.(b) | 8,300 | 184,426 | ||||||
737,266 | ||||||||
IT Consulting & Other Services–4.49% | ||||||||
International Business Machines Corp. | 24,900 | 3,068,427 | ||||||
Life & Health Insurance–0.18% | ||||||||
Prudential Financial, Inc. | 2,400 | 121,368 | ||||||
Managed Health Care–6.11% | ||||||||
Health Net Inc.(b) | 18,900 | 451,332 | ||||||
Humana Inc.(b) | 27,700 | 1,323,783 | ||||||
UnitedHealth Group Inc. | 75,600 | 2,398,032 | ||||||
4,173,147 | ||||||||
Movies & Entertainment–0.76% | ||||||||
Time Warner Inc. | 17,400 | 521,652 | ||||||
Multi-Line Insurance–0.24% | ||||||||
Assurant, Inc. | 4,400 | 160,864 | ||||||
Oil & Gas Equipment & Services–0.74% | ||||||||
National Oilwell Varco Inc. | 13,400 | 503,706 | ||||||
Packaged Foods & Meats–0.08% | ||||||||
Tyson Foods, Inc.–Class A | 3,300 | 54,054 | ||||||
Paper Packaging–0.33% | ||||||||
Temple-Inland Inc. | 14,100 | 224,613 | ||||||
Paper Products–0.54% | ||||||||
MeadWestvaco Corp. | 17,000 | 369,920 | ||||||
Pharmaceuticals–5.46% | ||||||||
Abbott Laboratories | 1,000 | 49,340 | ||||||
Eli Lilly and Co. | 35,100 | 1,177,956 | ||||||
Forest Laboratories, Inc.(b) | 16,200 | 442,098 | ||||||
Johnson & Johnson | 36,100 | 2,058,422 | ||||||
3,727,816 | ||||||||
Publishing–0.88% | ||||||||
Gannett Co., Inc. | 37,100 | 448,539 | ||||||
McGraw-Hill Cos., Inc. (The) | 5,600 | 154,840 | ||||||
603,379 | ||||||||
Semiconductor Equipment–0.42% | ||||||||
Amkor Technology, Inc.(b) | 57,000 | 288,990 | ||||||
Semiconductors–2.61% | ||||||||
Intel Corp. | 20,400 | 361,488 | ||||||
Micron Technology, Inc.(b) | 220,100 | 1,422,947 | ||||||
1,784,435 | ||||||||
Soft Drinks–1.60% | ||||||||
Coca-Cola Co. (The) | 19,500 | 1,090,440 | ||||||
Specialized Consumer Services–0.66% | ||||||||
Sotheby’s | 17,000 | 452,370 | ||||||
Specialty Chemicals–0.70% | ||||||||
W.R. Grace & Co.(b) | 18,900 | 478,170 | ||||||
Systems Software–5.62% | ||||||||
Microsoft Corp. | 163,500 | 3,838,980 | ||||||
Tobacco–4.09% | ||||||||
Philip Morris International Inc. | 54,400 | 2,798,336 | ||||||
Wireless Telecommunication Services–0.08% | ||||||||
Sprint Nextel Corp.(b) | 13,400 | 54,672 | ||||||
Total Common Stocks & Other Equity Interests (Cost $69,469,551) | 67,108,411 | |||||||
Principal | ||||||||
Amount | ||||||||
U.S. Treasury Securities–0.46% | ||||||||
U.S. Treasury Bills–0.46% | ||||||||
0.08%, 09/16/10 (Cost $314,990)(c)(d) | $ | 315,000 | $ | 314,990 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Structured Growth Fund
Table of Contents
Shares | Value | |||||||
Money Market Funds–1.26% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 429,563 | $ | 429,563 | |||||
Premier Portfolio–Institutional Class(e) | 429,563 | 429,563 | ||||||
Total Money Market Funds (Cost $859,126) | 859,126 | |||||||
TOTAL INVESTMENTS–99.93% (Cost $70,643,667) | 68,282,527 | |||||||
OTHER ASSETS LESS LIABILITIES–0.07% | 45,718 | |||||||
NET ASSETS–100.00% | $ | 68,328,245 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Structured Growth Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $69,784,541) | $ | 67,423,401 | ||
Investments in affiliated money market funds, at value and cost | 859,126 | |||
Total investments, at value (Cost $70,643,667) | 68,282,527 | |||
Receivables for: | ||||
Variation margin | 3,200 | |||
Fund shares sold | 5,939 | |||
Dividends | 156,039 | |||
Investment for trustee deferred compensation and retirement plans | 7,159 | |||
Other assets | 25,025 | |||
Total assets | 68,479,889 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 81,364 | |||
Accrued fees to affiliates | 4,261 | |||
Accrued other operating expenses | 52,326 | |||
Trustee deferred compensation and retirement plans | 13,693 | |||
Total liabilities | 151,644 | |||
Net assets applicable to shares outstanding | $ | 68,328,245 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 114,882,449 | ||
Undistributed net investment income | 704,863 | |||
Undistributed net realized gain (loss) | (44,870,381 | ) | ||
Unrealized appreciation (depreciation) | (2,388,686 | ) | ||
$ | 68,328,245 | |||
Net Assets: | ||||
Class A | $ | 1,625,041 | ||
Class B | $ | 217,285 | ||
Class C | $ | 616,519 | ||
Class R | $ | 38,334 | ||
Class Y | $ | 94,661 | ||
Institutional Class | $ | 65,736,405 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 211,246 | |||
Class B | 28,802 | |||
Class C | 81,771 | |||
Class R | 4,993 | |||
Class Y | 12,294 | |||
Institutional Class | 8,526,291 | |||
Class A: | ||||
Net asset value per share | $ | 7.69 | ||
Maximum offering price per share | ||||
(Net asset value of $7.69 divided by 94.50%) | $ | 8.14 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 7.54 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 7.54 | ||
Class R: | ||||
Net asset value and offering price per share | $ | 7.68 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 7.70 | ||
Institutional Class: | ||||
Net asset value and offering price per share | $ | 7.71 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Dividends | $ | 1,342,147 | ||
Dividends from affiliated money market funds | 1,708 | |||
Total investment income | 1,343,855 | |||
Expenses: | ||||
Advisory fees | 482,051 | |||
Administrative services fees | 50,000 | |||
Custodian fees | 10,019 | |||
Distribution fees: | ||||
Class A | 5,414 | |||
Class B | 2,812 | |||
Class C | 8,287 | |||
Class R | 191 | |||
Transfer agent fees — A, B, C, R and Y | 14,995 | |||
Transfer agent fees — Institutional | 3,148 | |||
Trustees’ and officers’ fees and benefits | 22,408 | |||
Registration and filing fees | 68,074 | |||
Professional services fees | 55,087 | |||
Other | 25,834 | |||
Total expenses | 748,320 | |||
Less: Fees waived and expenses reimbursed | (130,519 | ) | ||
Net expenses | 617,801 | |||
Net investment income | 726,054 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 6,959,000 | |||
Futures contracts | 146,935 | |||
7,105,935 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (7,545,451 | ) | ||
Futures contracts | (108,803 | ) | ||
(7,654,254 | ) | |||
Net realized and unrealized gain (loss) | (548,319 | ) | ||
Net increase in net assets resulting from operations | $ | 177,735 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the years ended August 31, 2010 and 2009
August 31, | August 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 726,054 | $ | 1,391,749 | ||||
Net realized gain (loss) | 7,105,935 | (46,347,281 | ) | |||||
Change in net unrealized appreciation (depreciation) | (7,654,254 | ) | 4,889,892 | |||||
Net increase (decrease) in net assets resulting from operations | 177,735 | (40,065,640 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Class A | (31,729 | ) | (9,644 | ) | ||||
Class B | (2,785 | ) | — | |||||
Class C | (8,411 | ) | — | |||||
Class R | (474 | ) | (34 | ) | ||||
Class Y | (1,248 | ) | (853 | ) | ||||
Institutional Class | (1,221,174 | ) | (741,359 | ) | ||||
Total distributions from net investment income | (1,265,821 | ) | (751,890 | ) | ||||
Share transactions–net: | ||||||||
Class A | (861,414 | ) | (1,212,517 | ) | ||||
Class B | (77,427 | ) | (60,118 | ) | ||||
Class C | (350,515 | ) | (437,430 | ) | ||||
Class R | 9,738 | 10,011 | ||||||
Class Y | 24,772 | 104,995 | ||||||
Institutional Class | (15,808,835 | ) | (37,102,160 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (17,063,681 | ) | (38,697,219 | ) | ||||
Net increase (decrease) in net assets | (18,151,767 | ) | (79,514,749 | ) | ||||
Net assets: | ||||||||
Beginning of year | 86,480,012 | 165,994,761 | ||||||
End of year (includes undistributed net investment income of $704,863 and $1,244,630, respectively) | $ | 68,328,245 | $ | 86,480,012 | ||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Structured Growth Fund, formerly AIM Structured Growth Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the |
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security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
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D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
J. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .60% | ||
Next $250 million | 0 | .575% | ||
Next $500 million | 0 | .55% | ||
Next $1.5 billion | 0 | .525% | ||
Next $2.5 billion | 0 | .50% | ||
Next $2.5 billion | 0 | .475% | ||
Next $2.5 billion | 0 | .45% | ||
Over $10 billion | 0 | .425% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such
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Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least December 31, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit Total Annual Operating Expenses After Fee Waiver [and/or Expense Reimbursement] (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares to 1.00%, 1.75%, 1.75%, 1.25%, 0.75% and 0.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Operating Expenses [and/or Expense Reimbursement] to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco Advisers, Inc. may terminate the fee waiver arrangement at any time.
The Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended August 31, 2010, the Adviser waived advisory fees $112,377 and reimbursed class level expenses of $9,558, $1,241, $3,657, $168, $370 and $3,148 of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares, respectively.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended August 31, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B, Class C and Class R shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended August 31, 2010, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended August 31, 2010, IDI advised the Fund that IDI retained $691 in front-end sales commissions from the sale of Class A shares and $0, $612 and $24 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
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The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 67,967,537 | $ | — | $ | — | $ | 67,967,537 | ||||||||
U.S. Treasury Securities | — | 314,990 | — | 314,990 | ||||||||||||
$ | 67,967,537 | $ | 314,990 | $ | — | $ | 68,282,527 | |||||||||
Futures* | (27,546 | ) | — | — | (27,546 | ) | ||||||||||
Total Investments | $ | 67,939,991 | $ | 314,990 | $ | — | $ | 68,254,981 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | — | $ | (27,546 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended August 31, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 146,935 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Interest rate risk | (108,803 | ) | ||
Total | $ | 38,132 | ||
* | The average value of futures during the period was $1,309,413. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
Chicago Mercantile Exchange E-Mini S&P 500 | 20 | September-2010/Long | $ | 1,048,300 | $ | (27,546 | ) | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended August 31, 2010, the Fund paid legal fees of $2,916 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
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NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 1,265,821 | $ | 751,890 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 719,042 | ||
Net unrealized appreciation (depreciation) — investments | (3,087,619 | ) | ||
Temporary book/tax differences | (14,179 | ) | ||
Post-October deferrals | (220,271 | ) | ||
Capital loss carryforward | (43,951,177 | ) | ||
Shares of beneficial interest | 114,882,449 | |||
Total net assets | $ | 68,328,245 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2016 | $ | 665,716 | ||
August 31, 2017 | 18,872,447 | |||
August 31, 2018 | 24,413,014 | |||
Total capital loss carryforward | $ | 43,951,177 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $81,259,266 and $98,682,675, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 3,596,898 | ||
Aggregate unrealized (depreciation) of investment securities | (6,684,517 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (3,087,619 | ) | |
Cost of investments for tax purposes is $71,370,146. |
19 Invesco Structured Growth Fund
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NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended August 31, | ||||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 20,965 | $ | 177,989 | 169,910 | $ | 1,152,699 | ||||||||||
Class B | 3,310 | 27,592 | 18,151 | 124,957 | ||||||||||||
Class C | 4,748 | 39,514 | 8,285 | 61,492 | ||||||||||||
Class R | 1,108 | 9,264 | 1,235 | 9,977 | ||||||||||||
Class Y | 4,571 | 37,590 | 42,748 | 327,844 | ||||||||||||
Institutional Class | 928,673 | 7,666,069 | 751,214 | 5,229,110 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | 3,701 | 31,123 | 1,449 | 9,419 | ||||||||||||
Class B | 316 | 2,624 | — | — | ||||||||||||
Class C | 931 | 7,712 | — | — | ||||||||||||
Class R | 56 | 474 | 5 | 34 | ||||||||||||
Class Y | 149 | 1,248 | 131 | 853 | ||||||||||||
Institutional Class | 145,205 | 1,221,175 | 114,055 | 741,359 | ||||||||||||
Automatic conversion of Class B shares to Class A shares: | ||||||||||||||||
Class A | 3,820 | 31,952 | 9,173 | 58,967 | ||||||||||||
Class B | (3,887 | ) | (31,952 | ) | (9,301 | ) | (58,967 | ) | ||||||||
Reacquired: | ||||||||||||||||
Class A | (130,503 | ) | (1,102,478 | ) | (347,229 | ) | (2,433,602 | ) | ||||||||
Class B | (9,120 | ) | (75,691 | ) | (16,909 | ) | (126,108 | ) | ||||||||
Class C | (48,618 | ) | (397,741 | ) | (73,737 | ) | (498,922 | ) | ||||||||
Class Y | (1,610 | ) | (14,066 | ) | (33,695 | ) | (223,702 | ) | ||||||||
Institutional Class | (2,918,468 | ) | (24,696,079 | ) | (6,011,495 | ) | (43,072,629 | ) | ||||||||
Net increase (decrease) in share activity | (1,994,653 | ) | $ | (17,063,681 | ) | (5,376,010 | ) | $ | (38,697,219 | ) | ||||||
(a) | 89% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual funds that are also advised by Invesco. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
Note 10—Subsequent Event
On September 15, 2010, the Board of Trustees of the Trust approved a Plan of Liquidation, which authorizes the termination, liquidation and dissolution of the Fund. In order to effect such liquidation, the Fund will close to new investors on or about September 30, 2010. The liquidation is not subject to the approval of shareholders of the Funds. The Fund will be liquidated on or about October 29, 2010.
20 Invesco Structured Growth Fund
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NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | on securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | $ | 7.95 | $ | 0.05 | $ | (0.19 | ) | $ | (0.14 | ) | $ | (0.12 | ) | $ | — | $ | (0.12 | ) | $ | 7.69 | (1.86 | )% | $ | 1,625 | 1.00 | %(d) | 1.58 | %(d) | 0.67 | %(d) | 104 | % | ||||||||||||||||||||||||
Year ended 08/31/09 | 10.20 | 0.09 | (2.31 | ) | (2.22 | ) | (0.03 | ) | — | (0.03 | ) | 7.95 | (21.72 | ) | 2,491 | 1.01 | 1.50 | 1.20 | 102 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.45 | 0.04 | (0.93 | ) | (0.89 | ) | (0.03 | ) | (0.33 | ) | (0.36 | ) | 10.20 | (8.25 | ) | 4,894 | 1.00 | 1.18 | 0.37 | 119 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.93 | 0.02 | 1.53 | 1.55 | (0.02 | ) | (0.01 | ) | (0.03 | ) | 11.45 | 15.63 | 7,481 | 1.01 | 1.29 | 0.17 | 91 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.11 | (0.18 | ) | (0.07 | ) | — | — | — | 9.93 | (0.70 | ) | 862 | 1.03 | (f) | 5.52 | (f) | 2.57 | (f) | 7 | ||||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.82 | (0.00 | ) | (0.20 | ) | (0.20 | ) | (0.08 | ) | — | (0.08 | ) | 7.54 | (2.69 | ) | 217 | 1.75 | (d) | 2.33 | (d) | (0.08 | )(d) | 104 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 10.05 | 0.03 | (2.26 | ) | (2.23 | ) | — | — | — | 7.82 | (22.19 | ) | 298 | 1.76 | 2.25 | 0.45 | 102 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.35 | (0.04 | ) | (0.93 | ) | (0.97 | ) | — | (0.33 | ) | (0.33 | ) | 10.05 | (8.98 | ) | 465 | 1.75 | 1.93 | (0.38 | ) | 119 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.90 | (0.07 | ) | 1.53 | 1.46 | — | (0.01 | ) | (0.01 | ) | 11.35 | 14.76 | 472 | 1.76 | 2.04 | (0.58 | ) | 91 | ||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.08 | (0.18 | ) | (0.10 | ) | — | — | — | 9.90 | (1.00 | ) | 662 | 1.78 | (f) | 6.27 | (f) | 1.82 | (f) | 7 | ||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.81 | (0.00 | ) | (0.19 | ) | (0.19 | ) | (0.08 | ) | — | (0.08 | ) | 7.54 | (2.56 | ) | 617 | 1.75 | (d) | 2.33 | (d) | (0.08 | )(d) | 104 | |||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 10.05 | 0.03 | (2.27 | ) | (2.24 | ) | — | — | — | 7.81 | (22.29 | ) | 974 | 1.76 | 2.25 | 0.45 | 102 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.35 | (0.04 | ) | (0.93 | ) | (0.97 | ) | — | (0.33 | ) | (0.33 | ) | 10.05 | (8.98 | ) | 1,911 | 1.75 | 1.93 | (0.38 | ) | 119 | |||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.90 | (0.07 | ) | 1.53 | 1.46 | — | (0.01 | ) | (0.01 | ) | 11.35 | 14.76 | 2,065 | 1.76 | 2.04 | (0.58 | ) | 91 | ||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.08 | (0.18 | ) | (0.10 | ) | — | — | — | 9.90 | (1.00 | ) | 599 | 1.78 | (f) | 6.27 | (f) | 1.82 | (f) | 7 | ||||||||||||||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.94 | 0.04 | (0.19 | ) | (0.15 | ) | (0.11 | ) | — | (0.11 | ) | 7.68 | (2.04 | ) | 38 | 1.25 | (d) | 1.83 | (d) | 0.42 | (d) | 104 | ||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 10.18 | 0.07 | (2.30 | ) | (2.23 | ) | (0.01 | ) | — | (0.01 | ) | 7.94 | (21.88 | ) | 30 | 1.26 | 1.75 | 0.95 | 102 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.44 | 0.01 | (0.94 | ) | (0.93 | ) | — | (0.33 | ) | (0.33 | ) | 10.18 | (8.55 | ) | 26 | 1.25 | 1.43 | 0.12 | 119 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.92 | (0.01 | ) | 1.54 | 1.53 | (0.00 | ) | (0.01 | ) | (0.01 | ) | 11.44 | 15.46 | 13 | 1.26 | 1.54 | (0.08 | ) | 91 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.10 | (0.18 | ) | (0.08 | ) | — | — | — | 9.92 | (0.80 | ) | 595 | 1.28 | (f) | 5.77 | (f) | 2.32 | (f) | 7 | ||||||||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.96 | 0.08 | (0.20 | ) | (0.12 | ) | (0.14 | ) | — | (0.14 | ) | 7.70 | (1.67 | ) | 95 | 0.75 | (d) | 1.33 | (d) | 0.92 | (d) | 104 | ||||||||||||||||||||||||||||||||||
Year ended 08/31/09(e) | 8.05 | 0.08 | (0.14 | ) | (0.06 | ) | (0.03 | ) | — | (0.03 | ) | 7.96 | (0.60 | ) | 73 | 0.75 | 1.29 | 1.46 | 102 | |||||||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.97 | 0.08 | (0.20 | ) | (0.12 | ) | (0.14 | ) | — | (0.14 | ) | 7.71 | (1.66 | ) | 65,736 | 0.75 | (d) | 0.89 | (d) | 0.92 | (d) | 104 | ||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 10.23 | 0.10 | (2.31 | ) | (2.21 | ) | (0.05 | ) | — | (0.05 | ) | 7.97 | (21.45 | ) | 82,613 | 0.75 | 0.86 | 1.46 | 102 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.48 | 0.07 | (0.93 | ) | (0.86 | ) | (0.06 | ) | (0.33 | ) | (0.39 | ) | 10.23 | (7.99 | ) | 158,699 | 0.73 | 0.73 | 0.64 | 119 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 9.94 | 0.05 | 1.53 | 1.58 | (0.03 | ) | (0.01 | ) | (0.04 | ) | 11.48 | 15.93 | 163,313 | 0.75 | 0.89 | 0.43 | 91 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.12 | (0.18 | ) | (0.06 | ) | — | — | — | 9.94 | (0.60 | ) | 86,898 | 0.77 | (f) | 5.20 | (f) | 2.83 | (f) | 7 | ||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $2,166, $281, $829, $38, $84 and $76,944 for Class A, Class B, Class C, Class R, Class Y, Investor Class and Institutional Class shares, respectively. | |
(e) | Commencement date of March 31, 2006 for Class A, Class B, Class C, Class R and Institutional Class shares and October 3, 2008 for Class Y shares. | |
(f) | Annualized. |
21 Invesco Structured Growth Fund
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Structured Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Structured Growth Fund (formerly known as AIM Structured Growth Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
As discussed in Note 10 to the financial statements, on September 15, 2010, the Board of Trustees of the Trust approved a Plan of Liquidation, which authorizes the termination, liquidation and dissolution of the Fund.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
22 Invesco Structured Growth Fund
Table of Contents
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 906.80 | $ | 4.81 | $ | 1,020.16 | $ | 5.09 | 1.00 | % | ||||||||||||||||||
B | 1,000.00 | 903.00 | 8.39 | 1,016.38 | 8.89 | 1.75 | ||||||||||||||||||||||||
C | 1,000.00 | 904.10 | 8.40 | 1,016.38 | 8.89 | 1.75 | ||||||||||||||||||||||||
R | 1,000.00 | 906.70 | 6.01 | 1,018.90 | 6.36 | 1.25 | ||||||||||||||||||||||||
Y | 1,000.00 | 908.00 | 3.61 | 1,021.42 | 3.82 | 0.75 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 906.80 | 3.61 | 1,021.42 | 3.82 | 0.75 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
23 Invesco Structured Growth Fund
Table of Contents
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Structured Growth Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Advisers are appropriate and that Invesco Advisers currently is providing satisfactory advisory services in accordance with the terms of the Fund’s investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund’s portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board noted that the Fund recently began operations and that only three calendar years of comparative performance data was available. The Board compared the Fund’s performance during the
24 Invesco Structured Growth Fund
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past one and three calendar years to the performance of funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper Large-Cap Growth Funds Index. The Board noted that the performance of Class A shares of the Fund was in the fourth quintile of its performance universe for the one year period and the fifth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Class A shares of the Fund was below the performance of the Index for the one and three year periods. Invesco Advisers advised the Board that the Fund was managed consistently with its mandate and that quantitative processes, such as those followed by the Fund, are typically challenged at market inflection points. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Class A shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds with investment strategies comparable to those of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least December 31, 2011 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board considered the effect this expense limitation would have on the Fund’s estimated total expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the advisory fee after fee waivers and expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% | |||
U.S. Treasury Obligations* | 0.02% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
SGRO-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Structured Value Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
14 | Notes to Financial Statements | |
21 | Financial Highlights | |
22 | Auditor’s Report | |
23 | Fund Expenses | |
24 | Approval of Investment Advisory and Sub-Advisory Agreements | |
26 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Structured Value Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Structured Value Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended August 31, 2010, Class A shares of Invesco Structured Value Fund, at net asset value (NAV), lagged the Russell 1000 Value Index and underperformed the Lipper Large-Cap Value Funds Index. The Fund seeks to provide long-term growth of capital by investing, normally, at least 80% of its assets in a diversified portfolio of securities of large-cap companies.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 1.13 | % | ||
Class B Shares | 0.38 | |||
Class C Shares | 0.38 | |||
Class R Shares | 0.79 | |||
Class Y Shares | 1.36 | |||
Institutional Class Shares | 1.23 | |||
S&P 500 Index▼ (Broad Market Index) | 4.93 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | 4.96 | |||
Lipper Large-Cap Value Funds Index▼ (Peer Group Index) | 2.65 | |||
▼ Lipper Inc.
How we invest
We manage your Fund to provide exposure to large cap value equity stocks. The portfolio strives to outperform the Russell 1000 Value Index while minimizing the amount of additional risk relative to the benchmark. The Fund can be used as a long-term allocation to large-cap stocks that complements other style-specific strategies within a diversified asset allocation strategy.
Our investment process integrates the following key steps:
n | Universe development | |
n | Stock rankings | |
n | Risk assessment | |
n | Portfolio construction | |
n | Trading |
While the companies included in the Russell 1000 Value Index are used as a general guide for developing the Fund’s investable universe, non-benchmark stocks may also be considered. Each stock in the universe is evaluated on four factors: company earnings momentum,
price trend, management action and relative valuation. The scores from these four factors are combined to arrive at an overall alpha score (excess return forecast) for each stock. Each alpha score is relative to the other securities within the same industry. Stocks are also evaluated on a multitude of other factors to develop a stock-specific risk forecast and transaction cost forecast.
We then incorporate the alpha forecast, risk forecast and transaction cost forecast using an optimizer (a software tool) to build a portfolio that we believe is an optimal balance of the stocks’ potential risk and return. This portfolio is constructed according to certain constraints to increase the probability that the Fund’s relative performance and volatility remain within strategy guidelines. We continually monitor the portfolio and the overall investment process is repeated on a monthly basis to determine which companies should be bought or sold.
In terms of risk management, we seek
to minimize any style biases in the portfolio. Active managers typically add value in one of, or a combination of, four areas: beta bias (relative volatility), style bias, stock selection and sector/industry over- and underweight. We attempt to add value through our stock selection decisions. Consequently, our risk management process seeks to neutralize the Fund’s exposure relative to the benchmark with regard to beta, style and sector/industry exposures.
Market conditions and your Fund
Over the past year investors were optimistic about the prospect of an improving economy given accommodative monetary policy, fiscal stimulus and improving strength in the manufacturing sector. However, optimism turned to pessimism when there was little good news to counter the seeds of economic troubles planted in the first quarter, which were already weighing heavily on the market. Within the U.S., waning consumer confidence, worsening employment outlook and continued pressures in the financial sector confirmed that economic growth was stalling. Internationally, concerns arose from news of slowing economic growth in China and ongoing concerns about debt burdens in the southern eurozone, despite support from their northern peers. With little positive news to support the market, steady gains became steep losses.
At the beginning of the 12-month period covered by this report, riskier assets outperformed securities considered safe havens, such as U.S. Treasury securities. This trend continued through the middle of April 2010. However, renewed credit problems overseas and the market correction that occurred in May and continued into August created a more uncertain environment – prompting many investors to favor potential safety over risk. Although recent market volatility created challenges, it also created some investment opportunities
Portfolio Composition
By sector
Financials | 23.7 | % | ||
Health Care | 16.1 | |||
Consumer Discretionary | 15.4 | |||
Energy | 11.8 | |||
Telecommunication Services | 8.8 | |||
Information Technology | 7.1 | |||
Utilities | 4.9 | |||
Consumer Staples | 4.4 | |||
Industrials | 3.6 | |||
Materials | 2.7 | |||
U.S. Treasury Bills, Money Market Funds Plus Other Assets Less Liabilities | 1.5 |
Top 10 Equity Holdings* | ||||
1. AT&T Inc. | 4.9 | % | ||
2. Chevron Corp. | 4.5 | |||
3. Procter & Gamble Co. | 3.6 | |||
4. Verizon Communications Inc. | 3.2 | |||
5. Berkshire Hathaway Inc. | 2.5 | |||
6. Chubb Corp. | 2.4 | |||
7. Pfizer Inc. | 2.3 | |||
8. ConocoPhillips | 2.3 | |||
9. UnitedHealth Group Inc. | 2.3 | |||
10. Microsoft Corp. | 2.3 | |||
Total Net Assets | $59.1 million | |||
Total Number of Holdings* | 113 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* Excluding money market fund holdings.
4 | Invesco Structured Value Fund |
Table of Contents
as companies with positive fundamentals became more attractively valued.
All sectors in the Russell 1000 Value Index – aside from financials and information technology (IT) – posted positive performance for the reporting period as equity markets rallied through the first quarter of 2010 and in July 2010. All investment styles posted positive returns, with mid-cap stocks generally outperforming large-cap stocks and growth stocks generally outpacing value stocks for the period.1
Regarding the results of Invesco Structured Value Fund, it’s important to understand our investment process to better evaluate the drivers of our relative performance versus the benchmark. We generally evaluate performance based on the effect of our stock selection and risk management process.
Our stock selection model, based on the four factors (company earnings momentum, price trend, management action and relative value) that make up our alpha (excess return) forecast for stocks in our investment universe, was a detractor from Fund performance. However, when selecting Fund holdings, we also take into account our risk and transaction cost forecasts. We use our optimization software to assist in making investment decisions, based on risk and transaction cost forecasts, as well as our alpha forecast. Consequently, while our stock selection model may identify a stock with an attractive alpha forecast, the optimizer may indicate that its transaction costs are too high and/or its risk level is unacceptable. Placing more of an emphasis on transaction costs and potential risk in making stock selections may benefit or detract from Fund performance. For the fiscal year, it augmented our results.
Stock selection within the financials, health care, information technology and materials sectors aided Fund performance versus the benchmark index. Holdings in the consumer discretionary, consumer staples, energy, industrials and utilities sectors detracted from overall Fund performance.
From an individual stock perspective, Ford, Gannett and Wyeth were top contributors to Fund performance. Wyeth is no longer held by the Fund. In August 2010, Ford completed the sale of its Swedish Volvo Car unit and related assets to China’s Zhejiang Geely Holding Group (not a Fund holding).
Detractors from Fund performance in the energy sector included Exxon Mobil and D.R. Horton in the consumer discretionary sector. D.R. Horton – a leading U.S. homebuilder – posted a second quarter profit that met Wall
Street’s expectations as buyers and builders both rushed to finalize deals before the federal homebuyer tax credit expired on June 30.
The Fund underperformed the benchmark index due to the absence of an established trend in favor of our stock selection factors. During the reporting period, our model had limited predictive ability because our highest-ranked stocks underperformed our lowest-ranked stocks. The sharp sell-off in the stock market created particular challenges for our price trend model, since the positive trend established in March 2009 reversed significantly over the past few months. On a positive note, companies that were attractively priced based on earnings potential outperformed their peers in August, which partly offset weakness in the investment model. As part of implementing this strategy, the Fund may use derivatives, such as futures contracts to better manage our market exposure. The use of derivatives during the period was successful.
While the global economy appeared more stable entering 2010 than it did the prior year, forecasting the future direction of the economy remains extremely challenging. The bursting of the U.S. housing bubble, rising unemployment and increasing taxation may likely impede future economic growth, while massive fiscal and monetary stimulus may promote economic growth.
In a world of moderate but positive economic growth, low inflation and prolonged government liquidity support, we believe the potential for equities may exist. Additionally, valuations remain reasonable by historical standards, especially after the pullback during the second quarter of 2010.
We welcome new investors who joined the Fund during the fiscal year and would like to thank all of our shareholders for your investment in Invesco Structured Value Fund.
1 Lipper Inc.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Ralph Coutant
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Value Fund. Mr. Coutant joined Invesco in 1999. He earned a B.S. in business administration from the University of New Hampshire.
Anthony Munchak
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Value Fund. Mr. Munchak joined Invesco in 2000. He earned a B.S. and an M.S. in finance from Boston College and an M.B.A. from Bentley College.
Glen Murphy
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Value Fund. Mr. Murphy joined Invesco in 1995. He earned a B.A. in business administration from the University of Massachusetts at Amherst and an M.S. in finance from Boston College.
Francis Orlando
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Value Fund. Mr. Orlando began his investment career with Invesco in 1987. He earned a B.A. in business administration from Merrimack College and an M.B.A. from Boston University.
Anthony Shufflebotham
Chartered Financial Analyst, portfolio manager, is manager of Invesco Structured Value Fund. Mr. Shufflebotham joined Invesco in 1998. He earned a B.S. in economics, accounting and finance from Oxford Brookes University and an M.S. in finance from Boston College.
5 | Invesco Structured Value Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund and index data from 3/31/06
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index
results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
6 | Invesco Structured Value Fund |
Table of Contents
Average Annual Total Returns
As of 8/31/10, including maximum applicable
sales charges
sales charges
Class A Shares | ||||
Inception (3/31/06) | -5.07 | % | ||
1 Year | -4.49 | |||
Class B Shares | ||||
Inception (3/31/06) | -4.99 | % | ||
1 Year | -4.57 | |||
Class C Shares | ||||
Inception (3/31/06) | -4.58 | % | ||
1 Year | -0.61 | |||
Class R Shares | ||||
Inception (3/31/06) | -4.10 | % | ||
1 Year | 0.79 | |||
Class Y Shares | ||||
Inception | -3.76 | % | ||
1 Year | 1.36 | |||
Institutional Class Shares | ||||
Inception (3/31/06) | -3.63 | % | ||
1 Year | 1.23 | |||
Class Y shares incepted on October 3, 2008. Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 1.01%, 1.76%, 1.76%, 1.26%, 0.76% and 0.75%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 1.61%, 2.36%, 2.36%, 1.86%, 1.36% and 0.87%,
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||
Inception (3/31/06) | -5.68 | % | ||
1 Year | 6.37 | |||
Class B Shares | ||||
Inception (3/31/06) | -5.56 | % | ||
1 Year | 6.74 | |||
Class C Shares | ||||
Inception (3/31/06) | -5.17 | % | ||
1 Year | 10.59 | |||
Class R Shares | ||||
Inception (3/31/06) | -4.67 | % | ||
1 Year | 12.16 | |||
Class Y Shares | ||||
Inception | -4.35 | % | ||
1 Year | 12.78 | |||
Institutional Class Shares | ||||
Inception (3/31/06) | -4.19 | % | ||
1 Year | 12.77 |
respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class R, Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses on Class A, Class B, Class C, Class R and Class Y shares, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least December 31, 2011. See current prospectus for more information. |
7 | Invesco Structured Value Fund |
Table of Contents
Invesco Structured Value Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available only to certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. | |
n | The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk – the risk that the other party will not complete the transaction with the Fund. | |
n | Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. | |
n | The Fund’s foreign investments may be affected by changes in the foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased |
liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. | ||
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. | |
n | Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities. | |
n | The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. | |
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. | |
n | Value stocks may react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. Value stocks tend to be inexpensive relative to their earnings or assets compared to other types of stocks and may never realize their full value. Value stocks tend to be currently out of favor with many investors. | |
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
n | The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. |
n | The Lipper Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value funds tracked by Lipper. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | ASAVX | |
Class B Shares | ASBVX | |
Class C Shares | SBCVX | |
Class R Shares | ASRVX | |
Class Y Shares | ASAYX | |
Institutional Class Shares | ASIVX |
8 | Invesco Structured Value Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.53% | ||||||||
Airlines–0.34% | ||||||||
Alaska Air Group, Inc.(b) | 4,600 | $ | 203,458 | |||||
Apparel Retail–0.69% | ||||||||
Collective Brands, Inc.(b) | 12,800 | 165,504 | ||||||
Gap, Inc. (The) | 14,200 | 239,838 | ||||||
405,342 | ||||||||
Apparel, Accessories & Luxury Goods–1.03% | ||||||||
Jones Apparel Group, Inc. | 39,600 | 609,048 | ||||||
Asset Management & Custody Banks–0.39% | ||||||||
Bank of New York Mellon Corp. | 9,400 | 228,138 | ||||||
Auto Parts & Equipment–1.93% | ||||||||
TRW Automotive Holdings Corp.(b) | 32,800 | 1,140,128 | ||||||
Automobile Manufacturers–1.95% | ||||||||
Ford Motor Co.(b) | 101,900 | 1,150,451 | ||||||
Biotechnology–2.40% | ||||||||
Amgen Inc.(b) | 24,000 | 1,224,960 | ||||||
PDL BioPharma Inc. | 34,700 | 196,402 | ||||||
1,421,362 | ||||||||
Broadcasting–0.08% | ||||||||
CBS Corp.–Class B | 3,400 | 46,988 | ||||||
Cable & Satellite–0.46% | ||||||||
Comcast Corp.–Class A | 16,000 | 273,920 | ||||||
Coal & Consumable Fuels–0.09% | ||||||||
Peabody Energy Corp. | 1,200 | 51,360 | ||||||
Communications Equipment–0.39% | ||||||||
InterDigital, Inc.(b) | 4,100 | 101,352 | ||||||
Tellabs, Inc. | 18,400 | 130,640 | ||||||
231,992 | ||||||||
Computer & Electronics Retail–0.28% | ||||||||
Rent-A-Center, Inc. | 8,200 | 164,656 | ||||||
Computer Hardware–0.12% | ||||||||
Hewlett-Packard Co. | 1,800 | 69,264 | ||||||
Computer Storage & Peripherals–1.79% | ||||||||
Lexmark International, Inc.–Class A(b) | 22,300 | 780,277 | ||||||
SanDisk Corp.(b) | 8,400 | 279,216 | ||||||
1,059,493 | ||||||||
Construction, Farm Machinery & Heavy Trucks–1.55% | ||||||||
Joy Global Inc. | 4,000 | 226,960 | ||||||
Oshkosh Corp.(b) | 27,800 | 691,664 | ||||||
918,624 | ||||||||
Consumer Electronics–0.86% | ||||||||
Garmin Ltd. | 19,200 | 510,912 | ||||||
Consumer Finance–3.22% | ||||||||
American Express Co. | 28,400 | 1,132,308 | ||||||
Capital One Financial Corp. | 20,400 | 772,344 | ||||||
1,904,652 | ||||||||
Data Processing & Outsourced Services–0.37% | ||||||||
Visa Inc.–Class A | 3,200 | 220,736 | ||||||
Department Stores–0.88% | ||||||||
Macy’s, Inc. | 26,900 | 522,936 | ||||||
Diversified Banks–3.41% | ||||||||
U.S. Bancorp | 34,300 | 713,440 | ||||||
Wells Fargo & Co. | 55,400 | 1,304,670 | ||||||
2,018,110 | ||||||||
Diversified Metals & Mining–0.37% | ||||||||
Titanium Metals Corp.(b) | 12,000 | 217,440 | ||||||
Education Services–0.53% | ||||||||
Career Education Corp.(b) | 10,100 | 177,053 | ||||||
ITT Educational Services, Inc.(b) | 2,600 | 138,476 | ||||||
315,529 | ||||||||
Electric Utilities–2.93% | ||||||||
Edison International | 14,100 | 475,875 | ||||||
Exelon Corp. | 30,900 | 1,258,248 | ||||||
1,734,123 | ||||||||
Electronic Components–0.50% | ||||||||
Corning Inc. | 13,800 | 216,384 | ||||||
Vishay Intertechnology, Inc.(b) | 10,000 | 76,900 | ||||||
293,284 | ||||||||
General Merchandise Stores–0.41% | ||||||||
Target Corp. | 4,700 | 240,452 | ||||||
Gold–0.39% | ||||||||
Newmont Mining Corp. | 3,800 | 233,016 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Structured Value Fund
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Shares | Value | |||||||
Health Care Distributors–1.96% | ||||||||
Cardinal Health, Inc. | 31,000 | $ | 928,760 | |||||
McKesson Corp. | 4,000 | 232,200 | ||||||
1,160,960 | ||||||||
Homebuilding–1.26% | ||||||||
D.R. Horton, Inc. | 61,200 | 627,912 | ||||||
Lennar Corp.–Class A | 8,900 | 117,213 | ||||||
745,125 | ||||||||
Homefurnishing Retail–0.73% | ||||||||
Williams-Sonoma, Inc. | 16,600 | 430,936 | ||||||
Household Products–3.58% | ||||||||
Procter & Gamble Co. (The) | 35,500 | 2,118,285 | ||||||
Housewares & Specialties–0.32% | ||||||||
American Greetings Corp.–Class A | 9,900 | 191,070 | ||||||
Independent Power Producers & Energy Traders–1.99% | ||||||||
Constellation Energy Group Inc. | 32,600 | 956,158 | ||||||
NRG Energy, Inc.(b) | 10,800 | 219,456 | ||||||
1,175,614 | ||||||||
Industrial Conglomerates–1.13% | ||||||||
Carlisle Cos. Inc. | 4,000 | 112,200 | ||||||
General Electric Co. | 38,200 | 553,136 | ||||||
665,336 | ||||||||
Industrial Machinery–0.55% | ||||||||
Parker Hannifin Corp. | 5,500 | 325,380 | ||||||
Integrated Oil & Gas–10.52% | ||||||||
Chevron Corp. | 36,000 | 2,669,760 | ||||||
ConocoPhillips | 26,300 | 1,378,909 | ||||||
Exxon Mobil Corp. | 20,100 | 1,189,116 | ||||||
Occidental Petroleum Corp. | 13,400 | 979,272 | ||||||
6,217,057 | ||||||||
Integrated Telecommunication Services–8.14% | ||||||||
AT&T Inc. | 107,600 | 2,908,428 | ||||||
Verizon Communications Inc. | 64,600 | 1,906,346 | ||||||
4,814,774 | ||||||||
Internet Software & Services–0.19% | ||||||||
AOL Inc.(b) | 5,000 | 111,100 | ||||||
Investment Banking & Brokerage–0.63% | ||||||||
Goldman Sachs Group, Inc. (The) | 2,700 | 369,738 | ||||||
IT Consulting & Other Services–0.40% | ||||||||
International Business Machines Corp. | 1,900 | 234,137 | ||||||
Life & Health Insurance–1.93% | ||||||||
Aflac, Inc. | 7,900 | 373,275 | ||||||
Lincoln National Corp. | 4,800 | 112,128 | ||||||
Prudential Financial, Inc. | 12,900 | 652,353 | ||||||
1,137,756 | ||||||||
Managed Health Care–5.52% | ||||||||
Aetna Inc. | 3,800 | 101,536 | ||||||
CIGNA Corp. | 1,800 | 57,996 | ||||||
Health Net Inc.(b) | 30,600 | 730,728 | ||||||
Humana Inc.(b) | 21,100 | 1,008,369 | ||||||
UnitedHealth Group Inc. | 43,000 | 1,363,960 | ||||||
3,262,589 | ||||||||
Movies & Entertainment–1.68% | ||||||||
Time Warner Inc. | 33,100 | 992,338 | ||||||
Multi-Line Insurance–1.32% | ||||||||
Assurant, Inc. | 19,000 | 694,640 | ||||||
Genworth Financial Inc.–Class A(b) | 7,900 | 85,557 | ||||||
780,197 | ||||||||
Office Services & Supplies–0.04% | ||||||||
HNI Corp. | 1,100 | 25,707 | ||||||
Oil & Gas Equipment & Services–1.19% | ||||||||
National-Oilwell Varco Inc. | 18,000 | 676,620 | ||||||
Oil States International, Inc.(b) | 700 | 28,861 | ||||||
705,481 | ||||||||
Other Diversified Financial Services–2.64% | ||||||||
Bank of America Corp. | 38,400 | 478,080 | ||||||
Citigroup Inc.(b) | 27,500 | 102,300 | ||||||
JPMorgan Chase & Co. | 26,900 | 978,084 | ||||||
1,558,464 | ||||||||
Packaged Foods & Meats–0.71% | ||||||||
Tyson Foods, Inc.–Class A | 25,600 | 419,328 | ||||||
Paper Packaging–0.23% | ||||||||
Temple-Inland Inc. | 8,700 | 138,591 | ||||||
Paper Products–0.85% | ||||||||
Domtar Corp. | 800 | 48,016 | ||||||
International Paper Co. | 22,100 | 452,166 | ||||||
500,182 | ||||||||
Pharmaceuticals–6.22% | ||||||||
Abbott Laboratories | 4,900 | 241,766 | ||||||
Eli Lilly and Co. | 29,600 | 993,376 | ||||||
Forest Laboratories, Inc.(b) | 7,500 | 204,675 | ||||||
Johnson & Johnson | 10,000 | 570,200 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Structured Value Fund
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Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Merck & Co., Inc. | 8,100 | $ | 284,796 | |||||
Pfizer Inc. | 86,800 | 1,382,724 | ||||||
3,677,537 | ||||||||
Property & Casualty Insurance–6.96% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 18,500 | 1,457,430 | ||||||
Chubb Corp. (The) | 25,100 | 1,383,512 | ||||||
Travelers Cos., Inc. (The) | 23,100 | 1,131,438 | ||||||
XL Group PLC (Ireland) | 8,000 | 143,280 | ||||||
4,115,660 | ||||||||
Publishing–1.92% | ||||||||
Gannett Co., Inc. | 80,100 | 968,409 | ||||||
McGraw-Hill Cos., Inc. (The) | 3,500 | 96,775 | ||||||
New York Times Co. (The)–Class A(b) | 5,300 | 38,054 | ||||||
Scholastic Corp. | 1,300 | 30,459 | ||||||
1,133,697 | ||||||||
Regional Banks–1.47% | ||||||||
CIT Group, Inc.(b) | 4,900 | 179,732 | ||||||
Fifth Third Bancorp | 8,300 | 91,715 | ||||||
Huntington Bancshares Inc. | 6,900 | 36,501 | ||||||
KeyCorp | 9,900 | 72,963 | ||||||
PNC Financial Services Group, Inc. | 9,600 | 489,216 | ||||||
870,127 | ||||||||
Reinsurance–0.36% | ||||||||
Renaissance Re Holdings Ltd. | 3,700 | 210,123 | ||||||
Residential REIT’s–1.15% | ||||||||
Equity Residential | 14,800 | 678,284 | ||||||
Semiconductor Equipment–0.16% | ||||||||
Amkor Technology, Inc.(b) | 19,200 | 97,344 | ||||||
Semiconductors–0.92% | ||||||||
Intel Corp. | 2,500 | 44,300 | ||||||
Micron Technology, Inc.(b) | 77,400 | 500,391 | ||||||
544,691 | ||||||||
Specialized Consumer Services–0.39% | ||||||||
Sotheby’s | 8,600 | 228,846 | ||||||
Specialized REIT’s–0.19% | ||||||||
Hospitality Properties Trust | 3,900 | 76,245 | ||||||
Ventas, Inc. | 700 | 35,357 | ||||||
111,602 | ||||||||
Specialty Chemicals–0.45% | ||||||||
Cytec Industries Inc. | 1,700 | 80,631 | ||||||
W.R. Grace & Co.(b) | 7,400 | 187,220 | ||||||
267,851 | ||||||||
Steel–0.45% | ||||||||
Reliance Steel & Aluminum Co. | 2,900 | 108,025 | ||||||
Worthington Industries, Inc. | 11,100 | 157,842 | ||||||
265,867 | ||||||||
Systems Software–2.30% | ||||||||
Microsoft Corp. | 57,800 | 1,357,144 | ||||||
Tobacco–0.07% | ||||||||
Altria Group, Inc. | 1,800 | 40,176 | ||||||
Wireless Telecommunication Services–0.64% | ||||||||
Sprint Nextel Corp.(b) | 92,400 | 376,992 | ||||||
Total Common Stocks & Other Equity Interests (Cost $59,151,766) | 58,241,500 | |||||||
Principal | ||||||||
Amount | ||||||||
U.S. Treasury Securities–0.45% | ||||||||
U.S. Treasury Bills–0.45% | ||||||||
0.08%, 09/16/10 (Cost $264,991)(d) | $ | 265,000 | 264,991 | |||||
Shares | ||||||||
Money Market Funds–0.87% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 256,778 | 256,778 | ||||||
Premier Portfolio–Institutional Class(c) | 256,778 | 256,778 | ||||||
Total Money Market Funds (Cost $513,556) | 513,556 | |||||||
TOTAL INVESTMENTS–99.85% (Cost $59,930,313) | 59,020,047 | |||||||
OTHER ASSETS LESS LIABILITIES–0.15% | 87,423 | |||||||
NET ASSETS–100.00% | $ | 59,107,470 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $59,416,757) | $ | 58,506,491 | ||
Investments in affiliated money market funds, at value and cost | 513,556 | |||
Total investments, at value (Cost $59,930,313) | 59,020,047 | |||
Receivables for: | ||||
Variation margin | 2,080 | |||
Fund shares sold | 24,116 | |||
Dividends | 148,852 | |||
Fund expenses absorbed | 8,625 | |||
Investment for trustee deferred compensation and retirement plans | 7,058 | |||
Other assets | 24,385 | |||
Total assets | 59,235,163 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 60,743 | |||
Accrued fees to affiliates | 3,071 | |||
Accrued other operating expenses | 51,403 | |||
Trustee deferred compensation and retirement plans | 12,476 | |||
Total liabilities | 127,693 | |||
Net assets applicable to shares outstanding | $ | 59,107,470 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 106,042,127 | ||
Undistributed net investment income | 979,696 | |||
Undistributed net realized gain (loss) | (46,985,852 | ) | ||
Unrealized appreciation (depreciation) | (928,501 | ) | ||
$ | 59,107,470 | |||
Net Assets: | ||||
Class A | $ | 1,796,458 | ||
Class B | $ | 420,221 | ||
Class C | $ | 203,616 | ||
Class R | $ | 50,816 | ||
Class Y | $ | 64,269 | ||
Institutional Class | $ | 56,572,090 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 231,561 | |||
Class B | 54,511 | |||
Class C | 26,425 | |||
Class R | 6,567 | |||
Class Y | 8,271 | |||
Institutional Class | 7,278,584 | |||
Class A: | ||||
Net asset value per share | $ | 7.76 | ||
Maximum offering price per share (Net asset value of $7.76 divided by 94.50%) | $ | 8.21 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 7.71 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 7.71 | ||
Class R: | ||||
Net asset value and offering price per share | $ | 7.74 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 7.77 | ||
Institutional Class: | ||||
Net asset value and offering price per share | $ | 7.77 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Dividends (net of foreign withholding taxes of $-38) | $ | 1,568,450 | ||
Dividends from affiliated money market funds | (1,576 | ) | ||
Total investment income | 1,566,874 | |||
Expenses: | ||||
Advisory fees | 415,143 | |||
Administrative services fees | 50,000 | |||
Custodian fees | 11,955 | |||
Distribution fees: | ||||
Class A | 4,626 | |||
Class B | 5,115 | |||
Class C | 2,354 | |||
Class R | 244 | |||
Transfer agent fees — A, B, C, R and Y | 10,528 | |||
Transfer agent fees — Institutional | 3,230 | |||
Trustees’ and officers’ fees and benefits | 21,605 | |||
Registration and filing fees | 68,537 | |||
Professional services fees | 55,948 | |||
Other | 27,435 | |||
Total expenses | 676,720 | |||
Less: Fees waived and expenses reimbursed | (147,598 | ) | ||
Net expenses | 529,122 | |||
Net investment income | 1,037,752 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 2,724,352 | |||
Futures contracts | 118,399 | |||
2,842,751 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,876,846 | ) | ||
Futures contracts | (90,465 | ) | ||
(1,967,311 | ) | |||
Net realized and unrealized gain | 875,440 | |||
Net increase in net assets resulting from operations | $ | 1,913,192 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the years ended August 31, 2010 and 2009
August 31, | August 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,037,752 | $ | 1,933,513 | ||||
Net realized gain (loss) | 2,842,751 | (34,267,689 | ) | |||||
Change in net unrealized appreciation (depreciation) | (1,967,311 | ) | 6,142,080 | |||||
Net increase (decrease) in net assets resulting from operations | 1,913,192 | (26,192,096 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Class A | (35,323 | ) | (70,369 | ) | ||||
Class B | (8,949 | ) | (13,013 | ) | ||||
Class C | (3,046 | ) | (3,568 | ) | ||||
Class R | (831 | ) | (418 | ) | ||||
Class Y | (2,010 | ) | (5,073 | ) | ||||
Institutional Class | (1,451,015 | ) | (2,408,982 | ) | ||||
Total distributions from net investment income | (1,501,174 | ) | (2,501,423 | ) | ||||
Share transactions–net: | ||||||||
Class A | 163,653 | (1,417,556 | ) | |||||
Class B | 9,458 | (361,809 | ) | |||||
Class C | (53,496 | ) | 67,296 | |||||
Class R | 17,291 | 23,234 | ||||||
Class Y | (40,125 | ) | 117,368 | �� | ||||
Institutional Class | (15,648,083 | ) | (35,132,527 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (15,551,302 | ) | (36,703,994 | ) | ||||
Net increase (decrease) in net assets | (15,139,284 | ) | (65,397,513 | ) | ||||
Net assets: | ||||||||
Beginning of year | 74,246,754 | 139,644,267 | ||||||
End of year (includes undistributed net investment income of $979,696 and $1,443,118, respectively) | $ | 59,107,470 | $ | 74,246,754 | ||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Structured Value Fund, formerly AIM Structured Value Fund, (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the |
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security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
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D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
J. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .60% | ||
Next $250 million | 0 | .575% | ||
Next $500 million | 0 | .55% | ||
Next $1.5 billion | 0 | .525% | ||
Next $2.5 billion | 0 | .50% | ||
Next $2.5 billion | 0 | .475% | ||
Next $2.5 billion | 0 | .45% | ||
Over $10 billion | 0 | .425% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such
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Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least December 31, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit Total Annual Operating Expenses After Fee Waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares to 1.00%, 1.75%, 1.75%, 1.25%, 0.75% and 0.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Operating Expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on December 31, 2011.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended August 31, 2010, the Adviser waived advisory fees $133,840 and reimbursed class level expenses of $7,113, $1,965, $905, $188, $357, and $3,230 of Class A, Class B, Class C, Class R, Class Y, and Institutional Class shares, respectively.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended August 31, 2010, Invesco did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. For the year ended August 31, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class B, Class C, Class R, Class Y and Institutional Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B, Class C and Class R shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. For the year ended August 31, 2010, expenses incurred under the Plans are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended August 31, 2010, IDI advised the Fund that IDI retained $1,434 in front-end sales commissions from the sale of Class A shares and $0, $4,690, $0 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
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The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 58,755,056 | $ | — | $ | — | $ | 58,755,056 | ||||||||
U.S. Treasury Securities | — | 264,991 | — | 264,991 | ||||||||||||
$ | 58,755,056 | $ | 264,991 | $ | — | $ | 59,020,047 | |||||||||
Futures** | (18,235 | ) | — | — | (18,235 | ) | ||||||||||
Total Investments | $ | 58,736,821 | $ | 264,991 | $ | — | $ | 59,001,812 | ||||||||
** | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Market risk | ||||||||
Futures contracts(a) | $ | — | $ | (18,235 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended August 31, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain (Loss) | ||||
Market risk | $ | 118,399 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Market risk | (90,465 | ) | ||
Total | $ | 27,934 | ||
* | The average value of futures outstanding during the period was $1,223,623. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
E-Mini S&P 500 | 13 | September-2010/Long | $ | 681,395 | $ | (18,235 | ) | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended August 31, 2010, the Fund paid legal fees of $2,889 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
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NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 1,501,174 | $ | 2,501,423 | ||||
Total distributions | $ | 1,501,174 | $ | 2,501,423 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 992,651 | ||
Net unrealized appreciation (depreciation) — investments | (2,007,163 | ) | ||
Temporary book/tax differences | (12,955 | ) | ||
Post-October deferrals | (906,749 | ) | ||
Capital loss carryforward | (45,000,441 | ) | ||
Shares of beneficial interest | 106,042,127 | |||
Total net assets | $ | 59,107,470 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2016 | $ | 430,774 | ||
August 31, 2017 | 20,885,835 | |||
August 31, 2018 | 23,683,832 | |||
Total capital loss carryforward | $ | 45,000,441 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $62,575,866 and $78,417,497, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 3,950,018 | ||
Aggregate unrealized (depreciation) of investment securities | (5,957,181 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (2,007,163 | ) | |
Cost of investments for tax purposes is $61,027,210. |
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NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, undistributed net realized gain (loss) was decreased by $2 and shares of beneficial interest increased by $2. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended August 31, | ||||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 96,969 | $ | 811,133 | 130,514 | $ | 879,263 | ||||||||||
Class B | 36,654 | 304,387 | 36,712 | 245,248 | ||||||||||||
Class C | 4,910 | 41,496 | 23,865 | 173,244 | ||||||||||||
Class R | 2,193 | 18,044 | 5,096 | 41,323 | ||||||||||||
Class Y | 550 | 4,515 | 28,662 | 239,041 | ||||||||||||
Institutional Class | 718,390 | 5,900,210 | 686,674 | 4,780,084 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | 4,171 | 34,580 | 10,273 | 70,309 | ||||||||||||
Class B | 1,038 | 8,597 | 1,816 | 12,474 | ||||||||||||
Class C | 360 | 2,981 | 509 | 3,504 | ||||||||||||
Class R | 100 | 831 | 61 | 418 | ||||||||||||
Class Y | 242 | 2,010 | 739 | 5,073 | ||||||||||||
Institutional Class | 175,032 | 1,451,016 | 351,163 | 2,408,982 | ||||||||||||
Automatic conversion of Class B shares to Class A shares: | ||||||||||||||||
Class A | 7,037 | 58,846 | 13,879 | 95,812 | ||||||||||||
Class B | (7,068 | ) | (58,846 | ) | (13,941 | ) | (95,812 | ) | ||||||||
Reacquired: | ||||||||||||||||
Class A | (89,251 | ) | (740,906 | ) | (370,317 | ) | (2,462,940 | ) | ||||||||
Class B | (29,383 | ) | (244,680 | ) | (79,923 | ) | (523,719 | ) | ||||||||
Class C | (11,976 | ) | (97,973 | ) | (16,009 | ) | (109,452 | ) | ||||||||
Class R | (202 | ) | (1,584 | ) | (2,546 | ) | (18,507 | ) | ||||||||
Class Y | (5,735 | ) | (46,650 | ) | (16,187 | ) | (126,746 | ) | ||||||||
Institutional Class | (2,763,287 | ) | (22,999,309 | ) | (5,929,928 | ) | (42,321,593 | ) | ||||||||
Net increase (decrease) in share activity | (1,859,256 | ) | $ | (15,551,302 | ) | (5,138,888 | ) | $ | (36,703,994 | ) | ||||||
(a) | 88% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual funds that are also advised by Invesco. |
Effective November 30, 2010, all Invesco Funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
Note 11—Subsequent Event
On September 15, 2010, the Board of Trustees of the Trust approved a Plan of Liquidation, which authorizes the termination, liquidation and dissolution of the Fund. In order to effect such liquidation, the Fund will close to new investors on or about September 30, 2010. The liquidation is not subject to the approval of shareholders of the Funds. The Fund will liquidate on or about October 29, 2010.
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NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | $ | 7.83 | $ | 0.11 | $ | (0.01 | ) | $ | 0.10 | $ | (0.17 | ) | $ | — | $ | (0.17 | ) | $ | 7.76 | 1.13 | % | $ | 1,796 | 0.99 | %(d) | 1.57 | %(d) | 1.27 | %(d) | 93 | % | |||||||||||||||||||||||||
Year ended 08/31/09 | 9.54 | 0.14 | (1.68 | ) | (1.54 | ) | (0.17 | ) | — | (0.17 | ) | 7.83 | (15.87 | ) | 1,665 | 1.01 | 1.61 | 1.96 | 78 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.40 | 0.16 | (1.70 | ) | (1.54 | ) | (0.11 | ) | (0.21 | ) | (0.32 | ) | 9.54 | (13.83 | ) | 4,088 | 1.01 | 1.42 | 1.57 | 88 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.44 | 0.14 | 0.89 | 1.03 | (0.06 | ) | (0.01 | ) | (0.07 | ) | 11.40 | 9.80 | 2,011 | 1.01 | 1.36 | 1.17 | 62 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.20 | 0.24 | 0.44 | — | — | — | 10.44 | 4.40 | 856 | 1.03 | (f) | 5.80 | (f) | 4.59 | (f) | 5 | |||||||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.79 | 0.05 | (0.01 | ) | 0.04 | (0.12 | ) | — | (0.12 | ) | 7.71 | 0.38 | 420 | 1.74 | (d) | 2.32 | (d) | 0.52 | (d) | 93 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.50 | 0.09 | (1.68 | ) | (1.59 | ) | (0.12 | ) | — | (0.12 | ) | 7.79 | (16.60 | ) | 415 | 1.76 | 2.36 | 1.21 | 78 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.35 | 0.08 | (1.70 | ) | (1.62 | ) | (0.02 | ) | (0.21 | ) | (0.23 | ) | 9.50 | (14.50 | ) | 1,031 | 1.76 | 2.17 | 0.82 | 88 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.40 | 0.05 | 0.91 | 0.96 | — | (0.01 | ) | (0.01 | ) | 11.35 | 9.20 | 718 | 1.76 | 2.11 | 0.42 | 62 | ||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.16 | 0.24 | 0.40 | — | — | — | 10.40 | 4.00 | 790 | 1.78 | (f) | 6.55 | (f) | 3.84 | (f) | 5 | |||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.79 | 0.05 | (0.01 | ) | 0.04 | (0.12 | ) | — | (0.12 | ) | 7.71 | 0.38 | 204 | 1.74 | (d) | 2.32 | (d) | 0.52 | (d) | 93 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.49 | 0.08 | (1.66 | ) | (1.58 | ) | (0.12 | ) | — | (0.12 | ) | 7.79 | (16.51 | ) | 258 | 1.76 | 2.36 | 1.21 | 78 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.33 | 0.08 | (1.69 | ) | (1.61 | ) | (0.02 | ) | (0.21 | ) | (0.23 | ) | 9.49 | (14.43 | ) | 235 | 1.76 | 2.17 | 0.82 | 88 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.40 | 0.05 | 0.89 | 0.94 | — | (0.01 | ) | (0.01 | ) | 11.33 | 9.01 | 156 | 1.76 | 2.11 | 0.42 | 62 | ||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.16 | 0.24 | 0.40 | — | — | — | 10.40 | 4.00 | 632 | 1.78 | (f) | 6.55 | (f) | 3.84 | (f) | 5 | |||||||||||||||||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.82 | 0.08 | (0.01 | ) | 0.07 | (0.15 | ) | — | (0.15 | ) | 7.74 | 0.79 | 51 | 1.24 | (d) | 1.82 | (d) | 1.02 | (d) | 93 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.52 | 0.12 | (1.67 | ) | (1.55 | ) | (0.15 | ) | — | (0.15 | ) | 7.82 | (16.01 | ) | 35 | 1.26 | 1.86 | 1.71 | 78 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.38 | 0.13 | (1.70 | ) | (1.57 | ) | (0.08 | ) | (0.21 | ) | (0.29 | ) | 9.52 | (14.08 | ) | 18 | 1.26 | 1.67 | 1.32 | 88 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.42 | 0.11 | 0.90 | 1.01 | (0.04 | ) | (0.01 | ) | (0.05 | ) | 11.38 | 9.65 | 10 | 1.26 | 1.61 | 0.92 | 62 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.18 | 0.24 | 0.42 | — | — | — | 10.42 | 4.20 | 625 | 1.28 | (f) | 6.05 | (f) | 4.34 | (f) | 5 | |||||||||||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.84 | 0.13 | (0.01 | ) | 0.12 | (0.19 | ) | — | (0.19 | ) | 7.77 | 1.36 | 64 | 0.74 | (d) | 1.32 | (d) | 1.52 | (d) | 93 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/09(e) | 8.34 | 0.14 | (0.46 | ) | (0.32 | ) | (0.18 | ) | — | (0.18 | ) | 7.84 | (3.57 | ) | 104 | 0.76 | (d)(f) | 1.45 | (d)(f) | 2.21 | (d)(f) | 78 | ||||||||||||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 08/31/10 | 7.85 | 0.13 | (0.02 | ) | 0.11 | (0.19 | ) | — | (0.19 | ) | 7.77 | 1.23 | 56,572 | 0.75 | (d) | 0.95 | (d) | 1.51 | (d) | 93 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/09 | 9.56 | 0.15 | (1.67 | ) | (1.52 | ) | (0.19 | ) | — | (0.19 | ) | 7.85 | (15.59 | ) | 71,770 | 0.75 | 0.87 | 2.22 | 78 | |||||||||||||||||||||||||||||||||||||
Year ended 08/31/08 | 11.43 | 0.19 | (1.71 | ) | (1.52 | ) | (0.14 | ) | (0.21 | ) | (0.35 | ) | 9.56 | (13.64 | ) | 134,272 | 0.75 | 0.78 | 1.83 | 88 | ||||||||||||||||||||||||||||||||||||
Year ended 08/31/07 | 10.45 | 0.17 | 0.89 | 1.06 | (0.07 | ) | (0.01 | ) | (0.08 | ) | 11.43 | 10.13 | 134,931 | 0.75 | 0.94 | 1.43 | 62 | |||||||||||||||||||||||||||||||||||||||
Year ended 08/31/06(e) | 10.00 | 0.21 | 0.24 | 0.45 | — | — | — | 10.45 | 4.50 | 73,488 | 0.77 | (f) | 5.50 | (f) | 4.85 | (f) | 5 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,850, $511, $235, $93, $49, and $66,452 for Class A, Class B, Class C, Class R, Class Y, and Institutional Class shares, respectively. | |
(e) | Commencement date of March 31, 2006 for Class A. Class B, Class C, Class R and Institutional Class Shares and October 3, 2008 for Class Y shares. | |
(f) | Annualized. |
21 Invesco Structured Value Fund
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Structured Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Structured Value Fund (formerly known as AIM Structured Value Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
As discussed in Note 11 to the financial statements, on September 15, 2010, the Board of Trustees of the Trust approved a Plan of Liquidation, which authorizes the termination, liquidation and dissolution of the Fund.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
22 Invesco Structured Value Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 940.60 | $ | 4.89 | $ | 1,020.16 | $ | 5.09 | 1.00 | % | ||||||||||||||||||
B | 1,000.00 | 936.80 | 8.54 | 1,016.38 | 8.89 | 1.75 | ||||||||||||||||||||||||
C | 1,000.00 | 936.80 | 8.54 | 1,016.38 | 8.89 | 1.75 | ||||||||||||||||||||||||
R | 1,000.00 | 939.30 | 6.11 | 1,018.90 | 6.36 | 1.25 | ||||||||||||||||||||||||
Y | 1,000.00 | 940.70 | 3.67 | 1,021.42 | 3.82 | 0.75 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 940.70 | 3.67 | 1,021.42 | 3.82 | 0.75 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
23 Invesco Structured Value Fund
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Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Structured Value Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Advisers are appropriate and that Invesco Advisers currently is providing satisfactory advisory services in accordance with the terms of the Fund’s investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund’s portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
24 Invesco Structured Value Fund
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B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board noted that the Fund recently began operations and that only three calendar years of comparative performance data was available. The Board compared the Fund’s performance during the past one and three calendar years to the performance of funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper Large-Cap Value Funds Index. The Board noted that the performance of Class A shares of the Fund was in the third quintile of its performance universe for the one and three year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Class A shares of the Fund was below the performance of the Index for the one and three year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Class A shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least December 31, 2011 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board considered the effect this expense limitation would have on the Fund’s total estimated expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the advisory fee after fee waivers and expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
25 Invesco Structured Value Fund
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% | |||
U.S. Treasury Obligations* | 0.02% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
26 Invesco Structured Value Fund
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
SVAL-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Invesco Van Kampen American Franchise Fund
Annual Report to Shareholders | August 31, 2010 |
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
15 | Financial Highlights | |
18 | Notes to Financial Statements | |
25 | Auditor’s Report | |
26 | Fund Expenses | |
27 | Approval of Investment Advisory and Sub-Advisory Agreements | |
29 | Tax Information | |
30 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Van Kampen American Franchise Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Van Kampen American Franchise Fund |
Table of Contents
Performance summary
As part of Invesco’s June 1, 2010, acquisition of Morgan Stanley’s retail asset management business, Van Kampen American Franchise Fund was reorganized into Invesco Van Kampen American Franchise Fund.
On June 25, 2010, Erik Voss and Ido Cohen replaced the existing Fund management team. A listing of your Fund’s managers appears later in this report.
For the fiscal year ended August 31, 2010, Invesco Van Kampen American Franchise Fund at net asset value had positive double-digit returns and outperformed the Fund’s benchmark, the S&P 500 Index. Outperformance was driven primarily by stock selection in several sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 11.75 | % | ||
Class B Shares | 10.89 | |||
Class C Shares | 11.02 | |||
Class Y Shares | 11.95 | |||
S&P 500 Index▼ (Broad Market Index) | 4.93 | |||
Russell 1000 Growth Index▼ (Style-Specific Index) | 6.14 | |||
▼ | Lipper Inc. |
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process emphasizes rigorous bottom-up analysis of individual companies. We seek to invest in companies with strong or improving fundamentals, attractive valuation relative to growth prospects and earnings expectations that appear fair to conservative.
To narrow our investment universe, we utilize a holistic approach that emphasizes fundamental research and, to a lesser extent, includes quantitative analysis. At the end of this distillation process, we have a set of stocks to analyze in greater depth.
Our fundamental analysis focuses on identifying companies with strong drivers of growth. To accomplish this goal, we
conduct rigorous bottom-up analysis to develop higher conviction in each company’s prospects for growth. Through our analysis, we develop a mosaic of each company through detailed discussions with company management teams, competitors, distributors, suppliers, Wall Street analysts and customers. We also utilize a variety of valuation techniques based on the company in question, the industry in which the company operates, the stage of the business cycle and other factors that best reflect a company’s value.
Risk management plays an important role in portfolio construction, as our target portfolio attempts to maximize the relationship between risk and return. We seek to accomplish this goal by investing in companies with attractive fundamental prospects for growth and we divide the
portfolio between stable growth stocks and catalyst-driven stocks.
We consider selling a stock for any of the following reasons:
n | The price target set at purchase has been reached. | |
n | There is deterioration in fundamentals. | |
n | The catalysts for growth are no longer present or are reflected in the stock price. | |
n | There is a more attractive investment opportunity. |
Market conditions and your Fund
The U.S. economy provided signs of improvement during the Fund’s fiscal year, potentially indicating that the economy had transitioned from a contraction phase into an expansionary phase. Nevertheless, the pace of recovery remained modest, and the transition from government stimulus-induced growth to private economic recovery was uncertain.
The U.S. Federal Reserve’s federal funds target rate remained low, ranging from zero to 0.25%.1 Real gross domestic product (GDP) registered positive growth during the reporting period, with annualized increases of 5.0%, 3.7% and 1.7% for the fourth quarter of 2009, and the first and second quarters of 2010, respectively.2 Inflation, measured by the seasonally-adjusted Consumer Price Index (CPI), remained relatively benign. While labor markets improved as layoffs moderated, new hiring remained quite weak. Unemployment, after climbing steadily throughout 2009, fell slightly during the first half of 2010 to a rate of 9.6% nationwide as of August 2010.3
Against this backdrop, financial services, energy and health care were among the weakest performing sectors of the S&P 500 Index. Conversely, consumer discretionary, industrials and telecommunication services were the best performing sectors.
Portfolio Composition
By sector
Information Technology | 30.1 | % | ||
Consumer Discretionary | 14.3 | |||
Health Care | 13.1 | |||
Industrials | 11.2 | |||
Energy | 9.0 | |||
Materials | 5.9 | |||
Financials | 4.6 | |||
Consumer Staples | 2.3 | |||
Telecommunication Services | 1.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.8 |
Total Net Assets | $217.4 million | |||
Total Number of Holdings* | 62 |
Top 10 Equity Holdings*
1. Apple, Inc. | 6.8 | % | ||
2. EMC Corp. | 2.7 | |||
3. Exxon Mobil Corp. | 2.5 | |||
4. Union Pacific Corp. | 2.4 | |||
5. Mead Johnson Nutrition Co. | 2.3 | |||
6. Barrick Gold Corp. | 2.2 | |||
7. Baidu, Inc. | 2.2 | |||
8. Comcast Corp. | 2.2 | |||
9. Goodrich Corp. | 2.1 | |||
10. Abbott Laboratories | 2.1 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
*Excluding money market fund holdings.
4 | Invesco Van Kampen American Franchise Fund |
Table of Contents
The Fund at NAV had double-digit absolute returns and outperformed the S&P 500 Index during the reporting period. The Fund outperformed the index by the widest margins in the consumer discretionary, financials, information technology (IT) and health care sectors. Outperformance in each of these sectors was driven largely by stock selection.
The Fund outperformed the S&P 500 Index most significantly in the consumer discretionary sector, driven by stock selection and an overweight position. Examples of holdings that made key contributions to performance included Starbucks and Internet retailer Amazon.com.
Outperformance in the financials sector was driven primarily by stock selection. In this sector, holdings that contributed to the Fund’s performance included Berkshire Hathaway, diversified financial services holding American Express and real estate services firm Brookfield Asset Management. An underweight position in the sector also contributed to performance. The Fund’s position in Brookfield Asset Management was sold during the reporting period.
In the IT sector, Apple was the leading contributor to Fund performance during the reporting period. Apple continued to benefit from strong growth in revenue and earnings, driven by solid demand for the iPhone as well as the successful launch of the new iPad hand-held computer. Other holdings that contributed to performance in this sector included Redecard and customer relationship software maker Salesforce.com. The Fund’s position in Redecard was sold during the reporting period.
The Fund’s outperformance in the health care sector was largely due to stock selection. In this sector, one of the leading contributors to outperformance was pharmaceutical research and services provider Millipore. Eye care products maker Alcon was also a key contributor to Fund performance. The Fund’s position in Millipore was sold during the reporting period.
Some of the Fund’s outperformance was offset by underperformance in other sectors, including energy, materials and industrials. The Fund underperformed by the widest margin in the energy sector, driven by stock selection. In this sector, examples of holdings that detracted from performance included Schlumberger, Occidental Petroleum and EOG Resources. In the materials sector, the leading detractor from Fund performance was cement maker Cemex. The Fund’s
position in Cemex was sold during the reporting period. Underperformance in the industrials sector was due to an underweight position. Additionally, industrial and commercial products maker Ingersoll-Rand was one of the key detractors from Fund performance in this sector.
As we’ve discussed, the stock market experienced volatile performance during the reporting period. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program.
We thank you for your commitment to Invesco Van Kampen American Franchise Fund.
1 U.S. Federal Reserve
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Erik Voss
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen American Franchise Fund. He joined Invesco in 2010. Mr. Voss earned a B.S. in mathematics and an M.S. in applied sciences program in finance, both from the University of Wisconsin.
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen American Franchise Fund. He joined Invesco in 2010. Mr. Voss earned a B.S. in mathematics and an M.S. in applied sciences program in finance, both from the University of Wisconsin.
Ido Cohen
Portfolio manager, is manager of Invesco Van Kampen American Franchise Fund. He joined Invesco in 2010. Mr. Cohen is a cum laude graduate of The Wharton School of the University of Pennsylvania with a B.S. in economics.
Portfolio manager, is manager of Invesco Van Kampen American Franchise Fund. He joined Invesco in 2010. Mr. Cohen is a cum laude graduate of The Wharton School of the University of Pennsylvania with a B.S. in economics.
5 | Invesco Van Kampen American Franchise Fund |
Table of Contents
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund date from 6/23/05, Index data from 6/30/05
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and
management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each
segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
6 | Invesco Van Kampen American Franchise Fund |
Table of Contents
Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||
Inception (6/23/05) | 0.93 | % | ||
5 Years | 0.62 | |||
1 Year | 5.57 | |||
Class B Shares | ||||
Inception (6/23/05) | 1.07 | % | ||
5 Years | 0.63 | |||
1 Year | 5.89 | |||
Class C Shares | ||||
Inception (6/23/05) | 1.28 | % | ||
5 Years | 1.03 | |||
1 Year | 10.02 | |||
ClassY Shares | ||||
Inception (6/23/05) | 2.28 | % | ||
5 Years | 2.04 | |||
1 Year | 11.95 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco Van Kampen American Franchise Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen American Franchise Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.35%, 2.10%, 2.10% and 1.10%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B,
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges
Class A Shares | ||||
Inception (6/23/05) | 0.80 | % | ||
5 Years | 0.97 | |||
1 Year | 18.74 | |||
Class B Shares | ||||
Inception (6/23/05) | 0.98 | % | ||
5 Years | 1.01 | |||
1 Year | 19.90 | |||
Class C Shares | ||||
Inception (6/23/05) | 1.18 | % | ||
5 Years | 1.39 | |||
1 Year | 23.90 | |||
Class Y Shares | ||||
Inception (6/23/05) | 2.19 | % | ||
5 Years | 2.38 | |||
1 Year | 26.03 |
Class C and Class Y shares was 1.41%, 2.16%, 2.16% and 1.16%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Van Kampen American Franchise Fund |
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Invesco Van Kampen American Franchise Fund’s investment objective is to seek long-term capital appreciation.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. |
n | The Fund is non-diversified and invests a greater portion of its assets in a more limited number of issuers than a diversified fund and, as a result, is subject to a greater risk than a diversified fund because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the value of the Fund’s shares. |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. |
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. |
n | The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | VAFAX | |
Class B Shares | VAFBX | |
Class C Shares | VAFCX | |
Class Y Shares | VAFIX |
8 | Invesco Van Kampen American Franchise Fund |
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Schedule of Investments
August 31, 2010
Shares | Value | |||||||
Common Stocks–92.2% | ||||||||
Aerospace & Defense–2.1% | ||||||||
Goodrich Corp. | 67,620 | $ | 4,630,618 | |||||
Agricultural Products–0.8% | ||||||||
Bunge Ltd. (Bermuda) | 31,666 | 1,678,298 | ||||||
Air Freight & Logistics–2.0% | ||||||||
C.H. Robinson Worldwide, Inc. | 40,486 | 2,631,185 | ||||||
Expeditors International of Washington, Inc. | 44,054 | 1,744,098 | ||||||
4,375,283 | ||||||||
Airlines–1.3% | ||||||||
Continental Airlines, Inc., Class B(a) | 127,620 | 2,851,031 | ||||||
Apparel Retail–3.8% | ||||||||
Limited Brands, Inc. | 175,605 | 4,144,278 | ||||||
Ross Stores, Inc. | 85,011 | 4,219,096 | ||||||
8,363,374 | ||||||||
Application Software–1.7% | ||||||||
Salesforce.com, Inc.(a) | 34,153 | 3,752,732 | ||||||
Asset Management & Custody Banks–0.8% | ||||||||
Ameriprise Financial, Inc. | 38,739 | 1,688,246 | ||||||
Biotechnology–1.5% | ||||||||
Gilead Sciences, Inc.(a) | 103,171 | 3,287,028 | ||||||
Broadcasting & Cable TV–2.2% | ||||||||
Comcast Corp., Class A | 277,040 | 4,742,925 | ||||||
Broadcasting–Diversified–2.1% | ||||||||
DIRECTV, Class A(a) | 63,467 | 2,406,669 | ||||||
Time Warner Cable, Inc. | 42,749 | 2,206,276 | ||||||
4,612,945 | ||||||||
Casinos & Gaming–1.3% | ||||||||
Las Vegas Sands Corp.(a) | 101,385 | 2,872,237 | ||||||
Communications Equipment–1.8% | ||||||||
Cisco Systems, Inc.(a) | 197,549 | 3,960,857 | ||||||
Computer Hardware–8.9% | ||||||||
Apple, Inc.(a) | 60,813 | 14,800,060 | ||||||
International Business Machines Corp. | 36,454 | 4,492,226 | ||||||
19,292,286 | ||||||||
Computer Storage & Peripherals–2.7% | ||||||||
EMC Corp.(a) | 324,060 | 5,910,854 | ||||||
Construction & Farm Machinery & Heavy Trucks–2.0% | ||||||||
Deere & Co. | 67,450 | 4,267,561 | ||||||
Consumer Finance–1.7% | ||||||||
American Express Co. | 91,222 | 3,637,021 | ||||||
Data Processing & Outsourced Services–1.7% | ||||||||
Visa, Inc., Class A | 54,155 | 3,735,612 | ||||||
Fertilizers & Agricultural Chemicals–3.7% | ||||||||
Monsanto Co. | 78,301 | 4,122,547 | ||||||
Mosaic Co. | 68,189 | 3,999,967 | ||||||
8,122,514 | ||||||||
Food Retail–0.0% | ||||||||
Tesco PLC (United Kingdom) | 17,992 | 112,291 | ||||||
General Merchandise Stores–1.1% | ||||||||
Dollar Tree, Inc.(a) | 53,345 | 2,418,129 | ||||||
Gold–2.2% | ||||||||
Barrick Gold Corp. (Canada)(b) | 102,095 | 4,773,962 | ||||||
Health Care Equipment–1.6% | ||||||||
Edwards Lifesciences Corp.(a) | 26,073 | 1,501,023 | ||||||
Hospira, Inc.(a) | 38,972 | 2,001,602 | ||||||
3,502,625 | ||||||||
Health Care Services–1.1% | ||||||||
Express Scripts, Inc.(a) | 24,740 | 1,053,924 | ||||||
Medco Health Solutions, Inc.(a) | 29,090 | 1,264,833 | ||||||
2,318,757 | ||||||||
Health Care Supplies–1.1% | ||||||||
Alcon, Inc. (Switzerland) | 14,844 | 2,407,697 | ||||||
Home Improvement Retail–0.8% | ||||||||
Home Depot, Inc. | 61,137 | 1,700,220 | ||||||
Industrial Machinery–1.4% | ||||||||
Ingersoll-Rand PLC (Ireland) | 93,591 | 3,044,515 | ||||||
Integrated Oil & Gas–4.5% | ||||||||
Exxon Mobil Corp. | 93,308 | 5,520,101 | ||||||
Occidental Petroleum Corp. | 57,658 | 4,213,647 | ||||||
9,733,748 | ||||||||
Internet Retail–1.1% | ||||||||
Amazon.com, Inc.(a) | 19,149 | 2,390,370 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen American Franchise Fund
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Shares | Value | |||||||
Internet Software & Services–3.2% | ||||||||
Baidu, Inc.–ADR (Cayman Islands)(a) | 60,808 | $ | 4,769,171 | |||||
Google, Inc., Class A(a) | 4,902 | 2,205,998 | ||||||
6,975,169 | ||||||||
IT Consulting & Other Services–2.0% | ||||||||
Cognizant Technology Solutions Corp., Class A(a) | 73,987 | 4,262,021 | ||||||
Life & Health Insurance–1.2% | ||||||||
Prudential Financial, Inc. | 49,982 | 2,527,590 | ||||||
Life Sciences Tools & Services–0.9% | ||||||||
Thermo Fisher Scientific, Inc.(a) | 46,003 | 1,937,646 | ||||||
Managed Health Care–2.0% | ||||||||
UnitedHealth Group, Inc. | 138,101 | 4,380,564 | ||||||
Oil & Gas Equipment & Services–3.9% | ||||||||
Cameron International Corp.(a) | 45,456 | 1,671,872 | ||||||
Halliburton Co. | 117,965 | 3,327,792 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 66,794 | 3,562,124 | ||||||
8,561,788 | ||||||||
Oil & Gas Exploration & Production–0.6% | ||||||||
EOG Resources, Inc. | 14,248 | 1,237,724 | ||||||
Pharmaceuticals–4.9% | ||||||||
Abbott Laboratories | 91,348 | 4,507,110 | ||||||
Mead Johnson Nutrition Co. | 94,582 | 4,936,235 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 21,974 | 1,111,445 | ||||||
10,554,790 | ||||||||
Property & Casualty Insurance–1.0% | ||||||||
Berkshire Hathaway, Inc., Class B(a) | 28,400 | 2,237,352 | ||||||
Railroads–2.4% | ||||||||
Union Pacific Corp. | 70,096 | 5,112,802 | ||||||
Restaurants–1.8% | ||||||||
McDonald’s Corp. | 51,550 | 3,766,243 | ||||||
Starbucks Corp. | 8,444 | 194,128 | ||||||
3,960,371 | ||||||||
Semiconductors–3.0% | ||||||||
Broadcom Corp., Class A | 60,315 | 1,807,641 | ||||||
Intel Corp. | 131,617 | 2,332,253 | ||||||
Xilinx, Inc. | 94,902 | 2,291,883 | ||||||
6,431,777 | ||||||||
Soft Drinks–1.5% | ||||||||
Dr. Pepper Snapple Group, Inc. | 88,621 | 3,263,025 | ||||||
Systems Software–5.1% | ||||||||
Microsoft Corp. | 113,125 | 2,656,175 | ||||||
Red Hat, Inc.(a) | 70,978 | 2,452,290 | ||||||
Rovi Corp.(a) | 90,591 | 3,941,614 | ||||||
VMware, Inc., Class A(a) | 25,544 | 2,006,992 | ||||||
11,057,071 | ||||||||
Wireless Telecommunication Services–1.7% | ||||||||
American Tower Corp., Class A(a) | 79,024 | 3,703,065 | ||||||
Total Common Stocks–92.2% (Cost $186,347,585) | 200,386,491 |
Money Market Funds–6.2% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 6,727,054 | 6,727,054 | ||||||
Premier Portfolio–Institutional Class(c) | 6,727,054 | 6,727,054 | ||||||
Total Money Market Funds–6.2% (Cost $13,454,108) | 13,454,108 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–98.4% (Cost $199,801,693) | 213,840,599 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.7% | ||||||||
Liquid Assets Portfolio–Institutional Class(c)(d)(Cost $3,637,122) | 3,637,122 | 3,637,122 | ||||||
TOTAL INVESTMENTS–100.1% (Cost $203,438,815) | 217,477,721 | |||||||
Foreign Currency–0.0% (Cost $4) | 4 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.1)% | (103,949 | ) | ||||||
NET ASSETS–100.0% | $ | 217,373,776 | ||||||
Investment Abbreviation:
ADR – American Depositary Receipt
Percentages are calculated as a percentage of net assets.
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | All or portion of this security was out on loan at August 31, 2010. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(d) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1(K). |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen American Franchise Fund
Table of Contents
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 3 in the Notes to Financial Statements for further information regarding fair value measurements.)
The following is a summary of the inputs used as of August 31, 2010 in valuing the Fund’s investments carried at value.
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Equity Securities | $ | 217,365,430 | $ | 112,291 | $ | — | $ | 217,477,721 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen American Franchise Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $186,347,585)* | $ | 200,386,491 | ||
Investments in affiliated money market funds, at value and cost | 17,091,230 | |||
Total investments, at value (Cost $203,438,815) | 217,477,721 | |||
Foreign currency (Cost $4) | 4 | |||
Receivables: | ||||
Investments sold | 4,686,097 | |||
Dividends | 505,813 | |||
Fund shares sold | 356,684 | |||
Other | 1,291 | |||
Total assets | 223,027,610 | |||
Liabilities: | ||||
Payables: | ||||
Collateral upon return of securities loaned | 3,637,122 | |||
Investments purchased | 1,110,216 | |||
Fund shares repurchased | 486,339 | |||
Distributor and affiliates | 158,126 | |||
Accrued expenses | 262,031 | |||
Total liabilities | 5,653,834 | |||
Net assets | $ | 217,373,776 | ||
Net assets consist of: | ||||
Capital (Par value of $0.01 per share with an unlimited number of shares authorized) | $ | 266,513,675 | ||
Net unrealized appreciation | 14,051,226 | |||
Accumulated undistributed net investment income (loss) | (165,074 | ) | ||
Accumulated net realized gain (loss) | (63,026,051 | ) | ||
Net assets | $ | 217,373,776 | ||
Maximum offering price per share: | ||||
Class A shares: | ||||
Net asset value and redemption price per share (Based on net assets of $168,731,338 and 17,228,118 shares of beneficial interest issued and outstanding) | $ | 9.79 | ||
Maximum sales charge (5.50% of offering price) | 0.57 | |||
Maximum offering price to public | $ | 10.36 | ||
Class B shares: | ||||
Net asset value and offering price per share (Based on net assets of $22,332,151 and 2,315,491 shares of beneficial interest issued and outstanding) | $ | 9.64 | ||
Class C shares: | ||||
Net asset value and offering price per share (Based on net assets of $23,717,877 and 2,451,344 shares of beneficial interest issued and outstanding) | $ | 9.68 | ||
Class Y shares: | ||||
Net asset value and offering price per share (Based on net assets of $2,592,410 and 263,713 shares of beneficial interest issued and outstanding) | $ | 9.83 | ||
* | At August 31, 2010, securities with an aggregate value of $3,580,460 were on loan to brokers. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Van Kampen American Franchise Fund
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Statement of Operations
For the Year Ended August 31, 2010
Investment Income: | ||||
Dividends (net of foreign withholding taxes of $106,359) | $ | 3,479,845 | ||
Dividends from affiliated money market funds | 6,800 | |||
Interest | 5,561 | |||
Total income | 3,492,206 | |||
Expenses: | ||||
Investment advisory fee | 1,729,791 | |||
Distribution fees | ||||
Class A | 486,023 | |||
Class B | 245,709 | |||
Class C | 227,004 | |||
Transfer agent fees — | 503,227 | |||
Reports to shareholders | 124,133 | |||
Administrative services fees | 73,397 | |||
Professional fees | 56,905 | |||
Registration fees | 50,832 | |||
Trustees and officers’ fees and benefits | 27,700 | |||
Custody | 23,322 | |||
Other | 24,297 | |||
Total expenses | 3,572,340 | |||
Expense reduction | 4,049 | |||
Net expense | 3,568,291 | |||
Net investment income (loss) | (76,085 | ) | ||
Realized and unrealized gain (loss): | ||||
Realized gain (loss): | ||||
Investments | 45,892,763 | |||
Foreign currency transactions | (197,220 | ) | ||
Net realized gain | 45,695,543 | |||
Unrealized appreciation (depreciation): | ||||
Beginning of the period | 29,984,322 | |||
End of the period: | ||||
Investments | 14,038,906 | |||
Foreign currency translation | 12,320 | |||
14,051,226 | ||||
Net unrealized appreciation (depreciation) during the period | (15,933,096 | ) | ||
Net realized and unrealized gain | 29,762,447 | |||
Net increase in net assets from operations | $ | 29,686,362 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen American Franchise Fund
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Statements of Changes in Net Assets
For The | For The | |||||||
Year Ended | Year Ended | |||||||
August 31, | August 31, | |||||||
2010 | 2009 | |||||||
From Investment Activities: | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (76,085 | ) | $ | 3,443,820 | |||
Net realized gain (loss) | 45,695,543 | (90,771,161 | ) | |||||
Net unrealized appreciation (depreciation) during the period | (15,933,096 | ) | 49,533,241 | |||||
Change in net assets from operations | 29,686,362 | (37,794,100 | ) | |||||
Distributions from net investment income: | ||||||||
Class A shares | (2,517,727 | ) | (4,110,002 | ) | ||||
Class B shares | (162,720 | ) | (269,527 | ) | ||||
Class C shares | (152,378 | ) | (281,286 | ) | ||||
Class Y shares | (39,480 | ) | (29,245 | ) | ||||
Total distributions | (2,872,305 | ) | (4,690,060 | ) | ||||
Net change in net assets from investment activities | 26,814,057 | (42,484,160 | ) | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 30,839,042 | 98,653,024 | ||||||
Net asset value of shares issued through dividend reinvestment | 2,791,563 | 4,284,372 | ||||||
Cost of shares repurchased | (93,177,185 | ) | (106,411,396 | ) | ||||
Net change in net assets from capital transactions | (59,546,580 | ) | (3,474,000 | ) | ||||
Total decrease in net assets | (32,732,523 | ) | (45,958,160 | ) | ||||
Net Assets: | ||||||||
Beginning of the period | 250,106,299 | 296,064,459 | ||||||
End of the period (including accumulated undistributed net investment income (loss) of $(165,074) and $2,784,562 respectively) | $ | 217,373,776 | $ | 250,106,299 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen American Franchise Fund
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Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class A Shares | ||||||||||||||||||||
Year Ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 8.87 | $ | 10.23 | $ | 12.19 | $ | 11.41 | $ | 10.17 | ||||||||||
Net investment income(a) | 0.01 | 0.13 | 0.13 | 0.36 | 0.15 | |||||||||||||||
Net realized and unrealized gain (loss) | 1.03 | (1.33 | ) | (1.20 | ) | 0.52 | 1.15 | |||||||||||||
Total from investment operations | 1.04 | (1.20 | ) | (1.07 | ) | 0.88 | 1.30 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.12 | 0.16 | 0.31 | 0.10 | 0.06 | |||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.58 | -0- | (b) | -0- | ||||||||||||||
Total distributions | 0.12 | 0.16 | 0.89 | 0.10 | 0.06 | |||||||||||||||
Net asset value, end of the period | $ | 9.79 | $ | 8.87 | $ | 10.23 | $ | 12.19 | $ | 11.41 | ||||||||||
Total return* | 11.75 | %(c) | (11.40 | )%(d) | (9.31 | )%(d) | 7.75 | %(d) | 12.80 | %(d) | ||||||||||
Net assets at end of the period (in millions) | $ | 168.7 | $ | 200.1 | $ | 241.0 | $ | 394.0 | $ | 173.7 | ||||||||||
Ratio of expenses to average net assets* | 1.30 | %(e) | 1.35 | %(f) | 1.24 | %(f) | 1.19 | %(f) | 1.36 | %(f) | ||||||||||
Ratio of net investment income to average net assets* | 0.11 | %(e) | 1.60 | % | 1.22 | % | 2.93 | % | 1.39 | % | ||||||||||
Portfolio turnover(g) | 101 | % | 105 | % | 18 | % | 39 | % | 17 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 1.30 | %(e) | 1.41 | %(f) | N/A | N/A | 1.46 | %(f) | ||||||||||||
Ratio of net investment income to average net assets | 0.11 | %(e) | 1.54 | % | N/A | N/A | 1.29 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or a contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | Ratios are based on average daily net assets (000’s omitted) of $194,409. | |
(f) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If this credit was reflected as a reduction of expenses, the ratio would decrease by 0.01% for the year ended August 31, 2006. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A=Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class B Shares | ||||||||||||||||||||
Year Ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 8.75 | $ | 10.08 | $ | 12.03 | $ | 11.30 | $ | 10.15 | ||||||||||
Net investment income (loss)(a) | (0.06 | ) | 0.07 | 0.05 | 0.26 | 0.07 | ||||||||||||||
Net realized and unrealized gain (loss) | 1.01 | (1.31 | ) | (1.18 | ) | 0.53 | 1.13 | |||||||||||||
Total from investment operations | 0.95 | (1.24 | ) | (1.13 | ) | 0.79 | 1.20 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.06 | 0.09 | 0.24 | 0.06 | 0.05 | |||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.58 | -0- | (b) | -0- | ||||||||||||||
Total distributions | 0.06 | 0.09 | 0.82 | 0.06 | 0.05 | |||||||||||||||
Net asset value, end of the period | $ | 9.64 | $ | 8.75 | $ | 10.08 | $ | 12.03 | $ | 11.30 | ||||||||||
Total return* | 10.89 | %(c) | (12.09 | )%(d) | (9.98 | )%(d) | 7.01 | %(d) | 11.90 | %(d) | ||||||||||
Net assets at end of the period (in millions) | $ | 22.3 | $ | 23.5 | $ | 28.3 | $ | 38.4 | $ | 19.5 | ||||||||||
Ratio of expenses to average net assets* | 2.05 | %(e) | 2.10 | %(f) | 2.00 | %(f) | 1.95 | %(f) | 2.11 | %(f) | ||||||||||
Ratio of net investment income (loss) to average net assets* | (0.64 | )%(e) | 0.86 | % | 0.45 | % | 2.15 | % | 0.65 | % | ||||||||||
Portfolio turnover(g) | 101 | % | 105 | % | 18 | % | 39 | % | 17 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 2.05 | %(e) | 2.16 | %(f) | N/A | N/A | 2.21 | %(f) | ||||||||||||
Ratio of net investment income (loss) to average net assets | (0.64 | )%(e) | 0.80 | % | N/A | N/A | 0.55 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC charge of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | Ratios are based on average daily net assets (000’s omitted) of $24,571. | |
(f) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If this credit was reflected as a reduction of expenses, the ratio would decrease by 0.01% for the year ended August 31, 2006. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A=Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class C Shares | ||||||||||||||||||||
Year Ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 8.76 | $ | 10.10 | $ | 12.02 | $ | 11.30 | $ | 10.15 | ||||||||||
Net investment income (loss)(a) | (0.05 | ) | 0.06 | 0.06 | 0.26 | 0.07 | ||||||||||||||
Net realized and unrealized gain (loss) | 1.03 | (1.30 | ) | (1.18 | ) | 0.53 | 1.13 | |||||||||||||
Total from investment operations | 0.98 | (1.24 | ) | (1.12 | ) | 0.79 | 1.20 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.06 | 0.10 | 0.22 | 0.07 | 0.05 | |||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.58 | -0- | (b) | -0- | ||||||||||||||
Total distributions | 0.06 | 0.10 | 0.80 | 0.07 | 0.05 | |||||||||||||||
Net asset value, end of the period | $ | 9.68 | $ | 8.76 | $ | 10.10 | $ | 12.02 | $ | 11.30 | ||||||||||
Total return* | 11.14 | %(c)(d) | (12.11 | )%(e) | (9.89 | )%(e)(g) | 6.99 | %(e) | 11.91 | %(e) | ||||||||||
Net assets at end of the period (in millions) | $ | 23.7 | $ | 25.1 | $ | 26.6 | $ | 46.4 | $ | 24.8 | ||||||||||
Ratio of expenses to average net assets* | 1.93 | %(d)(f) | 2.16 | %(h) | 1.92 | %(g)(h) | 1.95 | %(h) | 2.11 | %(h) | ||||||||||
Ratio of net investment income (loss) to average net assets* | (0.52 | )%(d)(f) | 0.78 | % | 0.55 | %(g) | 2.15 | % | 0.64 | % | ||||||||||
Portfolio turnover(i) | 101 | % | 105 | % | 18 | % | 39 | % | 17 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 1.93 | %(d)(f) | 2.22 | %(h) | N/A | N/A | 2.21 | %(h) | ||||||||||||
Ratio of net investment income (loss) to average net assets | (0.52 | )%(d)(f) | 0.72 | % | N/A | N/A | 0.54 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income (Loss) to Average Net Assets reflect actual Rule 12b-1 fees of 0.88%. | |
(e) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC charge of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(f) | Ratios are based on average daily net assets (000’s omitted) of $25,819. | |
(g) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual Rule 12b-1 fees less than 1%. | |
(h) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If this credit was reflected as a reduction of expenses, the ratio would decrease by 0.01% for the year ended August 31, 2006. | |
(i) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A=Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class Y Shares Ù | ||||||||||||||||||||
Year Ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 8.91 | $ | 10.27 | $ | 12.23 | $ | 11.44 | $ | 10.17 | ||||||||||
Net investment income(a) | 0.04 | 0.14 | 0.18 | 0.42 | 0.18 | |||||||||||||||
Net realized and unrealized gain (loss) | 1.02 | (1.31 | ) | (1.22 | ) | 0.48 | 1.15 | |||||||||||||
Total from investment operations | 1.06 | (1.17 | ) | (1.04 | ) | 0.90 | 1.33 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.14 | 0.19 | 0.34 | 0.11 | 0.06 | |||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.58 | -0-(b | ) | -0- | ||||||||||||||
Total distributions | 0.14 | 0.19 | 0.92 | 0.11 | 0.06 | |||||||||||||||
Net asset value, end of the period | $ | 9.83 | $ | 8.91 | $ | 10.27 | $ | 12.23 | $ | 11.44 | ||||||||||
Total return* | 11.95 | %(c) | (11.07 | )%(d) | (9.05 | )%(d) | 7.93 | %(d) | 13.22 | %(d) | ||||||||||
Net assets at end of the period (in millions) | $ | 2.6 | $ | 1.5 | $ | 0.1 | $ | 1.6 | $ | 1.0 | ||||||||||
Ratio of expenses to average net assets* | 1.05 | %(e) | 1.10 | %(f) | 1.00 | %(f) | 0.93 | %(f) | 1.11 | %(f) | ||||||||||
Ratio of net investment income to average net assets* | 0.35 | %(e) | 1.77 | % | 1.65 | % | 3.42 | % | 1.79 | % | ||||||||||
Portfolio turnover(g) | 101 | % | 105 | % | 18 | % | 39 | % | 17 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 1.05 | %(e) | 1.18 | %(f) | N/A | N/A(f | ) | 1.21 | %(f) | |||||||||||
Ratio of net investment income to average net assets | 0.35 | %(e) | 1.69 | % | N/A | N/A | 1.69 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Assumes reinvestment of all distributions for the period. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | Ratios are based on average daily net assets (000’s omitted) of $2,571. | |
(f) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If this credit was reflected as a reduction of expenses, the ratio would decrease by 0.01% for the year ended August 31, 2006. | |
Ù | On June 1, 2010, the Fund’s former Class I Shares were reorganized into Class Y Shares. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A=Not Applicable
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen American Franchise Fund (the “Fund”) is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen American Franchise Fund (the “Acquired Fund”), an investment portfolio of Van Kampen Equity Trust II. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is long-term capital appreciation.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B
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shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. |
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The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Eligible securities for collateral are securities consistent with the Fund’s investment objectives and may consist of U.S. Government Securities, U.S. Government Sponsored Agency Securities and/or, Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements, pursuant to procedures approved by the Board of Trustees, are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates (“Joint repurchase agreements”). The principal amount of the repurchase agreement is equal to the value at period-end. If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, the Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the collateral and loss of income. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities |
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entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .70% | ||
Next $500 million | 0 | .65% | ||
Over $1 billion | 0 | .60% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $1,330,258 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, and Class Y shares to 1.35%, 2.10%, 2.10%, and 1.10%, respectively, of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the period ended August 31, 2010, the Adviser waived advisory fees of $4,049.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $25,604 to VKII. For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
Prior to the Reorganization, under a legal services agreement, VKII provided legal services to the Acquired Fund. Pursuant to such agreement, the Acquired Fund paid $14,285 to VKII.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended August 31, 2010, IIS was paid $118,297 for providing such services. Prior to the Reorganization, the Acquired Fund paid $118,232 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares and Class C shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
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Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $740,472 to VKFI.
For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $4,830 in front-end sales commissions from the sale of Class A shares and $0, $15,302 and $478 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. Prior to the Reorganization, VKFI retained $33,078 in front-end sales commissions from the sale of Class A shares and $61,028, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended August 31, 2010, the Fund paid legal fees of $0 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. Prior to the Reorganization, the Acquired Fund recognized expense of $3,883 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 2,872,305 | $ | 4,690,060 | ||||
Long-term capital gain | -0- | -0- | ||||||
Total distributions | $ | 2,872,305 | $ | 4,690,060 | ||||
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Tax Components of Net Assets at Period-End:
2010 | ||||
Net unrealized appreciation — investments | $ | 13,312,172 | ||
Net unrealized appreciation — other investments | 12,320 | |||
Post-October currency loss deferral | (165,074 | ) | ||
Capital loss carryforward | (62,299,317 | ) | ||
Shares of beneficial interest | 266,513,675 | |||
Total net assets | $ | 217,373,776 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $0 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2016 | $ | 3,318,019 | ||
August 31, 2017 | 35,915,314 | |||
August 31, 2018 | 23,065,984 | |||
Total capital loss carryforward | $ | 62,299,317 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $237,682,002 and $313,662,786, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 19,451,251 | ||
Aggregate unrealized (depreciation) of investment securities | (6,139,079 | ) | ||
Net unrealized appreciation of investment securities | $ | 13,312,172 | ||
Cost of investments for tax purposes is $204,165,549 |
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, accumulated undistributed net investment income (loss) was decreased by $1,246, accumulated net realized gain (loss) was increased by $197,220 and shares of beneficial interest decreased by $195,974. This reclassification had no effect on the net assets of the Fund.
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NOTE 9—Share Information
For the | For the | |||||||||||||||
year ended | year ended | |||||||||||||||
August 31, 2010(a) | August 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Class A | 2,272,877 | (b) | $ | 22,481,196 | (b) | 10,262,168 | $ | 80,713,964 | ||||||||
Class B | 278,730 | 2,757,084 | 846,247 | 6,505,002 | ||||||||||||
Class C | 251,034 | 2,484,206 | 1,254,211 | 9,691,211 | ||||||||||||
Class Y | 316,694 | 3,116,556 | 223,949 | 1,742,847 | ||||||||||||
Total Sales | 3,119,335 | 30,839,042 | 12,586,575 | 98,653,024 | ||||||||||||
Dividend reinvestment: | ||||||||||||||||
Class A | 254,295 | 2,479,382 | 505,826 | 3,743,187 | ||||||||||||
Class B | 16,396 | 158,221 | 35,704 | 262,070 | ||||||||||||
Class C | 14,122 | 136,561 | 34,206 | 251,415 | ||||||||||||
Class Y | 1,781 | 17,399 | 3,738 | 27,700 | ||||||||||||
Total dividend reinvestment | 286,594 | 2,791,563 | 579,474 | 4,284,372 | ||||||||||||
Repurchases: | ||||||||||||||||
Class A | (7,851,906 | )(b) | (77,885,375 | )(b) | (11,771,734 | ) | (89,993,407 | ) | ||||||||
Class B | (660,819 | ) | (6,509,089 | ) | (1,011,800 | ) | (7,700,871 | ) | ||||||||
Class C | (674,167 | ) | (6,643,790 | ) | (1,061,620 | ) | (8,148,482 | ) | ||||||||
Class Y | (217,671 | ) | (2,138,931 | ) | (75,308 | ) | (568,636 | ) | ||||||||
Total Repurchases | (9,404,563 | ) | $ | (93,177,185 | ) | (13,920,462 | ) | $ | (106,411,396 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 59% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Includes automatic conversion of 46,387 Class B shares into 45,762 Class A shares at a value of $461,494. |
Effective November 30, 2010, all Invesco Funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 10—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Van Kampen American Franchise Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen American Franchise Fund (formerly known as Van Kampen American Franchise Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides reasonable basis for our opinion. The statement of changes in net assets for the year ended August 31, 2009 and the financial highlights of the Fund for the periods ended August 31, 2009 and prior were audited by other independent auditors whose report dated October 26, 2009 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio3 | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 992.90 | $ | 6.33 | $ | 1,018.85 | $ | 6.41 | 1.26 | % | ||||||||||||||||||
B | 1,000.00 | 989.73 | 10.08 | 1,015.07 | 10.21 | 2.01 | ||||||||||||||||||||||||
C | 1,000.00 | 989.76 | 9.33 | 1,015.83 | 9.45 | 1.86 | ||||||||||||||||||||||||
Y | 1,000.00 | 994.94 | 5.03 | 1,020.16 | 5.09 | 1.00 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
3 | The expense ratio for Class C reflects actual 12b-1 fees of less than 1%. |
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Approval of Investment Advisory and Sub-Advisory Agreements
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen American Franchise Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the
27 Invesco Van Kampen American Franchise Fund
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financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 99.94% | |||
Corporate Dividends Received Deduction* | 99.94% | |||
U.S. Treasury Obligations* | 0% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen American Franchise Fund was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 13,846,880 | 384,073 | 884,993 | 0 |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | �� | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | ||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/ completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
VK-AMFR-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Invesco Van Kampen Core Equity Fund
Annual Report to Shareholders § August 31, 2010
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
15 | Financial Highlights | |
19 | Notes to Financial Statements | |
26 | Auditor’s Report | |
27 | Fund Expenses | |
28 | Approval of Investment Advisory and Sub-Advisory Agreements | |
30 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Van Kampen Core Equity Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Van Kampen Core Equity Fund |
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Management’s Discussion of Fund Performance
Performance summary
Effective June 25, 2010, Meggan Walsh assumed management of the Invesco Van Kampen Core Equity Fund as the lead portfolio manager along with Jonathan Harrington as portfolio manager and a team of equity analysts. We have extensive industry experience, specifically with strategies that focus on dividend-paying stocks. We appreciate the opportunity to manage your Fund and look forward to a long-term partnership.
For the five months ended August 31, 2010, Invesco Van Kampen Core Equity Fund underperformed its style-specific benchmark, the S&P 500 Index. While we were managing the Fund for only part of this time, our comments will encompass the entire reporting period. The Fund’s underperformance for the period was largely due to an overweight in the consumer discretionary sector relative to the index. The Fund’s holdings in the industrials and financials sectors also detracted from relative results. Holdings in the consumer staples and utilities sectors had a positive effect on the Fund.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 3/31/10 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -10.99 | % | ||
Class B Shares | -11.32 | |||
Class C Shares | -11.32 | |||
Class R Shares | -11.11 | |||
Class Y Shares | -10.84 | |||
S&P 500 Index▼ (Broad Market Index/Style-Specific Index) | -9.48 | |||
▼ | Lipper Inc. |
How we invest
Our total return approach focuses on balancing long-term capital appreciation, current income and capital preservation. The Fund can serve as a conservative cornerstone within a well-diversified asset allocation strategy, complementing more aggressive and cyclical investments.
We seek companies that we believe have normalized earnings power greater than that implied by their current market valuation and that also return capital to shareholders via dividends and share repurchases. All stocks in the portfolio pay a dividend, and the Fund pays a quarterly dividend to shareholders. We strive to manage risk utilizing a valuation framework, careful stock selection and a rigorous buy-and-sell discipline.
We look for dividend-paying companies with strong profitability, solid balance sheets and capital allocation policies that support sustained or increasing dividends and share repurchases. We perform extensive fundamental research, incorporating both financial statement analysis and an assessment of the potential reward relative to the downside risk to determine a fair valuation over our two-year investment horizon for each stock. We believe our process can provide the best combination of dividend income, price appreciation and capital preservation.
We maintain a rigorous sell discipline and consider selling or trimming a stock when it no longer meets our investment criteria, including when:
n | A stock reaches its fair valuation (target price). | |
n | The company’s fundamental business prospects deteriorate. | |
n | A more attractive investment opportunity presents itself. |
Market conditions and your Fund
During the reporting period, equity markets were volatile as the market began to question the sustainability of the recovery. Fears of a double-dip recession arose as the sovereign debt crisis unfolded in the euro zone and economic indicators remained weak domestically. In the U.S., unemployment, consumer spending and the housing market all remained subdued, adding to fears that the recovery was slowing to a sub-normal growth rate.
In this environment, eight out of 10 sectors of the S&P 500 Index declined during the period.1 The more economically sensitive sectors such as financials, information technology (IT) and health care had the lowest returns, while traditionally defensive telecommunication services and utilities sectors had the highest returns. The health care sector, which historically has been more defensive, interestingly was one of the worst performers during the reporting period, mostly due to U.S. health care reform.
The largest detractor from Fund performance was General Electric in the industrials sector, and we eliminated this position during the period. The Fund’s exposure to the consumer discretionary sector also detracted from Fund performance with Royal Caribbean, Guess? and Best Buy among the top detractors. We eliminated our positions in Royal Caribbean and Guess?, but continued to hold Best Buy at the end of the reporting period.
The Fund owned foreign currency forward transactions during the reporting period. Portfolio managers used these
Portfolio Composition
By sector
Financials | 18.7 | % | ||
Consumer Staples | 17.0 | |||
Consumer Discretionary | 15.5 | |||
Industrials | 10.8 | |||
Information Technology | 7.5 | |||
Health Care | 5.8 | |||
Utilities | 5.2 | |||
Energy | 4.9 | |||
Materials | 4.3 | |||
Telecommunication Services | 2.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.4 |
Total Net Assets | $34.6 million | |
Total Number of Holdings* | 70 |
Top 10 Equity Holdings*
1. Philip Morris International, Inc. | 3.0 | % | ||
2. AT&T, Inc. | 2.9 | |||
3. Kimberly-Clark Corp. | 2.8 | |||
4. American Electric Power Co., Inc. | 2.1 | |||
5. SunTrust Banks, Inc. | 2.1 | |||
6. Automatic Data Processing, Inc. | 2.0 | |||
7. Johnson & Johnson | 2.0 | |||
8. Capital One Financial Corp. | 1.7 | |||
9. General Dynamics Corp. | 1.7 | |||
10. Altria Group, Inc. | 1.7 | |||
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Van Kampen Core Equity Fund |
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contracts to hedge exposure to foreign currency depreciation. The contracts detracted slightly from Fund performance for the period, and no contracts were held at the end of the period.
Since taking over management of the Fund, we added new holdings, such as General Mills and Coca-Cola, increasing our overweight exposure to the consumer staples sector. The Fund benefited as these companies delivered positive returns. Other strong contributors during the reporting period included telecommunications holding AT&T and utilities holding Public Service Enterprise Group (PSEG). We continued to hold our AT&T position at the end of the reporting period, but eliminated our exposure to PSEG, as we believed there were better total return opportunities elsewhere within the utilities sector.
We also increased exposure to the financials and industrials sectors during the reporting period, while trimming exposure to the IT, health care and energy sectors. At the end of the period, our largest sector overweights relative to the S&P 500 index were in materials, consumer discretionary and utilities. Our largest underweights were in IT, health care and energy.
The past several months have indeed been challenging for the markets. Although there have been signs of a slowdown in growth, we believe this is a normal part of the economic cycle as we transition out of the recovery phase. There are a number of positives which make us more optimistic about the markets. Corporate operating leverage is strong and profitability remains high given the dramatic cost reductions taken during the market downturn. Balance sheets are flush with cash, which can be used to benefit shareholders through dividends and/ or share repurchases. Dividend-paying stocks are also attractive versus bonds as equity yields remained higher. The removal of many regulatory-related uncertainties also bodes well for equity valuations.
We believe one of our competitive advantages is a disciplined approach to evaluating stocks from a total return perspective; focusing not only on their capital appreciation potential, but also on their current dividend income and capital preservation. This approach can help create a well-diversified fund that can serve as a cornerstone allocation within an overall portfolio.
We thank you for your commitment to Invesco Van Kampen Core Equity Fund.
1 Lipper Inc.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Meggan Walsh
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen Core Equity Fund.
Ms. Walsh began her investment career in 1987 and joined Invesco in 1991. She earned a B.S. in finance from the University of Maryland and an M.B.A. from Loyola University Maryland.
Jonathan Harrington
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Core Equity Fund.
Mr. Harrington joined Invesco in 2001 in its corporate associate rotation program. He earned a B.A. in history and philosophy from Dartmouth College and an M.B.A. from the Kellogg Graduate School of Management at Northwestern University.
5 | Invesco Van Kampen Core Equity Fund |
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Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund data from 8/27/07, Index data from 8/31/07
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but
they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
6 | Invesco Van Kampen Core Equity Fund |
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Average Annual Total Returns | ||||
As of 8/31/10, including maximum applicable sales charges | ||||
Class A Shares | ||||
Inception (8/27/07) | -13.45 | % | ||
1 Year | -4.59 | |||
Class B Shares | ||||
Inception (8/27/07) | -13.28 | % | ||
1 Year | -4.76 | |||
Class C Shares | ||||
Inception (8/27/07) | -12.47 | % | ||
1 Year | -0.69 | |||
Class R Shares | ||||
Inception (8/27/07) | -12.07 | % | ||
1 Year | 0.79 | |||
Class Y Shares | ||||
Inception (8/27/07) | -11.62 | % | ||
1 Year | 1.34 | |||
Effective June 1, 2010, Class A, Class B, Class C, Class R and Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C, Class R and Class Y shares, respectively, of Invesco Van Kampen Core Equity Fund. Returns shown above for Class A, Class B, Class C, Class R and Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen Core Equity Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R and Class Y shares was 1.20%, 1.95%, 1.95%, 1.45% and 0.95%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R and Class Y
Average Annual Total Returns | ||||
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges. | ||||
Class A Shares | ||||
Inception (8/27/07) | -14.46 | % | ||
1 Year | 7.02 | |||
Class B Shares | ||||
Inception (8/27/07) | -14.19 | % | ||
1 Year | 7.58 | |||
Class C Shares | ||||
Inception (8/27/07) | -13.38 | % | ||
1 Year | 11.49 | |||
Class R Shares | ||||
Inception (8/27/07) | -12.97 | % | ||
1 Year | 13.13 | |||
Class Y Shares | ||||
Inception (8/27/07) | -12.54 | % | ||
1 Year | 13.56 |
shares was 1.63%, 2.38%, 2.38%, 1.88% and 1.38%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class R and Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Van Kampen Core Equity Fund |
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Invesco Van Kampen Core Equity Fund’s investment objective is to seek capital growth and income.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. | |
n | Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets. | |
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. | |
n | The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | VCEAX | |
Class B Shares | VCEBX | |
Class C Shares | VCECX | |
Class R Shares | VCERX | |
Class Y Shares | VCEIX |
8 | Invesco Van Kampen Core Equity Fund |
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Schedule of Investments
August 31, 2010
Shares | Value | |||||||
Common Stocks–92.6% | ||||||||
Aerospace & Defense–4.4% | ||||||||
General Dynamics Corp. | 10,709 | $ | 598,312 | |||||
Raytheon Co. | 8,772 | 385,266 | ||||||
United Technologies Corp. | 8,200 | 534,722 | ||||||
1,518,300 | ||||||||
Apparel, Accessories & Luxury Goods–1.3% | ||||||||
VF Corp. | 6,371 | 449,920 | ||||||
Apparel Retail–1.2% | ||||||||
Ross Stores, Inc. | 8,021 | 398,082 | ||||||
Asset Management & Custody Banks–2.5% | ||||||||
Federated Investors, Inc., Class B | 21,875 | 456,094 | ||||||
State Street Corp. | 11,563 | 405,630 | ||||||
861,724 | ||||||||
Auto Parts & Equipment–1.4% | ||||||||
Johnson Controls, Inc. | 18,430 | 488,948 | ||||||
Brewers–1.7% | ||||||||
Heineken NV (Netherlands) | 13,049 | 582,878 | ||||||
Building Products–1.5% | ||||||||
Masco Corp. | 49,224 | 516,360 | ||||||
Casinos & Gaming–1.3% | ||||||||
International Game Technology | 31,253 | 456,294 | ||||||
Communications Equipment–1.1% | ||||||||
Corning, Inc. | 24,480 | 383,846 | ||||||
Computer & Electronics Retail–1.3% | ||||||||
Best Buy Co., Inc. | 14,330 | 449,819 | ||||||
Computer Hardware–1.3% | ||||||||
IBM Corp. | 3,520 | 433,770 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.2% | ||||||||
Caterpillar, Inc. | 6,596 | 429,795 | ||||||
Consumer Finance–3.3% | ||||||||
American Express Co. | 13,211 | 526,723 | ||||||
Capital One Financial Corp. | 15,819 | 598,907 | ||||||
1,125,630 | ||||||||
Data Processing & Outsourced Services–2.0% | ||||||||
Automatic Data Processing, Inc. | 18,098 | 698,764 | ||||||
Distributors–0.7% | ||||||||
Genuine Parts Co. | 5,678 | 238,078 | ||||||
Diversified Banks–1.0% | ||||||||
Societe Generale (France) | 7,117 | 359,911 | ||||||
Diversified Chemicals–1.5% | ||||||||
Du Pont (E.I.) de Nemours & Co. | 12,965 | 528,583 | ||||||
Drug Retail–0.7% | ||||||||
Walgreen Co. | 9,322 | 250,575 | ||||||
Electric Utilities–3.3% | ||||||||
American Electric Power Co., Inc. | 20,671 | 731,960 | ||||||
Entergy Corp. | 5,160 | 406,814 | ||||||
1,138,774 | ||||||||
Electrical Components & Equipment–1.1% | ||||||||
Emerson Electric Co. | 8,402 | 391,953 | ||||||
Food Distributors–1.5% | ||||||||
Sysco Corp. | 18,775 | 516,125 | ||||||
Gas Utilities–0.5% | ||||||||
Southern Union Co. | 7,784 | 175,140 | ||||||
General Merchandise Stores–1.7% | ||||||||
Target Corp. | 11,492 | 587,931 | ||||||
Health Care Equipment–1.4% | ||||||||
Stryker Corp. | 11,136 | 480,964 | ||||||
Household Appliances–2.2% | ||||||||
Snap-On, Inc. | 10,878 | 448,500 | ||||||
Whirlpool Corp. | 4,035 | 299,236 | ||||||
747,736 | ||||||||
Household Products–2.8% | ||||||||
Kimberly-Clark Corp. | 15,140 | 975,016 | ||||||
Industrial Machinery–1.4% | ||||||||
Pentair, Inc. | 16,318 | 491,172 | ||||||
Insurance Brokers–1.4% | ||||||||
Marsh & McLennan Cos., Inc. | 20,605 | 488,751 | ||||||
Integrated Oil & Gas–3.7% | ||||||||
Chevron Corp. | 5,822 | 431,759 | ||||||
ENI SpA (Italy) | 20,650 | 408,118 | ||||||
Exxon Mobil Corp. | 2,934 | 173,575 | ||||||
Total SA (France) | 5,823 | 271,146 | ||||||
1,284,598 | ||||||||
Integrated Telecommunication Services–2.9% | ||||||||
AT&T, Inc. | 37,200 | 1,005,516 | ||||||
Investment Banking & Brokerage–0.8% | ||||||||
Charles Schwab Corp. | 20,253 | 258,428 | ||||||
Leisure Products–0.8% | ||||||||
Mattel, Inc. | 13,104 | 275,053 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Core Equity Fund
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Shares | Value | |||||||
Life & Health Insurance–2.4% | ||||||||
Lincoln National Corp. | 11,777 | $ | 275,111 | |||||
MetLife, Inc. | 15,170 | 570,392 | ||||||
845,503 | ||||||||
Lodging/Resorts–0.6% | ||||||||
Marriott International, Inc., Class A | 6,561 | 210,018 | ||||||
Motorcycle Manufacturers–0.5% | ||||||||
Harley-Davidson, Inc. | 7,454 | 181,281 | ||||||
Movies & Entertainment–1.2% | ||||||||
Time Warner, Inc. | 14,049 | 421,189 | ||||||
Multi-Utilities–1.4% | ||||||||
DTE Energy Co. | 10,580 | 495,673 | ||||||
Office Services & Supplies–1.2% | ||||||||
Pitney Bowes, Inc. | 20,770 | 399,615 | ||||||
Oil & Gas Equipment & Services–1.1% | ||||||||
Baker Hughes, Inc. | 10,563 | 396,958 | ||||||
Other Diversified Financial Services–1.0% | ||||||||
JPMorgan Chase & Co. | 9,047 | 328,949 | ||||||
Packaged Foods & Meats–3.9% | ||||||||
Campbell Soup Co. | 10,485 | 390,671 | ||||||
General Mills, Inc. | 10,776 | 389,660 | ||||||
Kraft Foods, Inc., Class A | 18,883 | 565,546 | ||||||
1,345,877 | ||||||||
Paper Products–1.7% | ||||||||
International Paper Co. | 28,640 | 585,974 | ||||||
Pharmaceuticals–4.4% | ||||||||
Bristol-Myers Squibb Co. | 19,545 | 509,734 | ||||||
Johnson & Johnson | 12,206 | 695,986 | ||||||
Mead Johnson Nutrition Co. | 2,640 | 137,781 | ||||||
Pfizer, Inc. | 12,245 | 195,063 | ||||||
1,538,564 | ||||||||
Property & Casualty Insurance–1.6% | ||||||||
Travelers Cos., Inc. | 11,290 | 552,984 | ||||||
Regional Banks–3.4% | ||||||||
Fifth Third Bancorp | 41,297 | 456,332 | ||||||
SunTrust Banks, Inc. | 31,697 | 712,865 | ||||||
1,169,197 | ||||||||
Restaurants–1.4% | ||||||||
Brinker International, Inc. | 30,253 | 476,485 | ||||||
Semiconductors–0.6% | ||||||||
Texas Instruments, Inc. | 8,785 | 202,319 | ||||||
Soft Drinks–1.6% | ||||||||
Coca-Cola Co. | 10,176 | 569,042 | ||||||
Specialty Chemicals–1.1% | ||||||||
Lubrizol Corp. | 4,081 | 380,798 | ||||||
Systems Software–2.5% | ||||||||
Microsoft Corp. | 14,291 | 335,553 | ||||||
Oracle Corp. | 24,430 | 534,528 | ||||||
870,081 | ||||||||
Thrifts & Mortgage Finance–1.4% | ||||||||
Hudson City Bancorp, Inc. | 40,994 | 472,456 | ||||||
Tobacco–4.7% | ||||||||
Altria Group, Inc. | 26,779 | 597,707 | ||||||
Philip Morris International, Inc. | 20,250 | 1,041,660 | ||||||
1,639,367 | ||||||||
Total Common Stocks–92.6% (Cost $31,921,313) | 32,070,764 | |||||||
Money Market Funds–7.7% | ||||||||
Liquid Assets Portfolio–Institutional Class(a) | 1,337,142 | 1,337,142 | ||||||
Premier Portfolio–Institutional Class(a) | 1,337,142 | 1,337,142 | ||||||
Total Money Market Funds–7.7% (Cost $2,674,284) | 2,674,284 | |||||||
TOTAL INVESTMENTS–100.3% (Cost $34,595,597) | 34,745,048 | |||||||
FOREIGN CURRENCY–0.0% (Cost $16,032) | 16,051 | |||||||
LIABILITIES IN EXCESS OF OTHER ASSETS–(0.3%) | (114,008 | ) | ||||||
NET ASSETS–-100.0% | $ | 34,647,091 | ||||||
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
(a) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Core Equity Fund
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Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 3 in the Notes to Financial Statements for further information regarding fair value measurements.)
The following is a summary of the inputs used as of August 31, 2010 in valuing the Fund’s investments carried at value.
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Equity Securities | $ | 33,122,995 | $ | 1,622,053 | $ | — | $ | 34,745,048 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Core Equity Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $31,921,313) | $ | 32,070,764 | ||
Investments in affiliated money market funds, at value and cost | 2,674,284 | |||
Foreign currency (Cost $16,032) | 16,051 | |||
Receivables: | ||||
Investments sold | 1,379,238 | |||
Dividends | 79,581 | |||
Expense reimbursement from adviser | 27,792 | |||
Fund shares sold | 16,236 | |||
Other assets | 223 | |||
Total assets | 36,264,169 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 1,467,339 | |||
Fund shares repurchased | 38,159 | |||
Distributor and affiliates | 22,433 | |||
Accrued expenses | 89,147 | |||
Total liabilities | 1,617,078 | |||
Net assets | $ | 34,647,091 | ||
Net assets consist of: | ||||
Capital (par value of $0.01 per share with an unlimited number of shares authorized) | $ | 37,583,414 | ||
Accumulated undistributed net investment income | 232,349 | |||
Net unrealized appreciation | 149,446 | |||
Accumulated net realized gain (loss) | (3,318,118 | ) | ||
Net assets | $ | 34,647,091 | ||
Maximum offering price per share: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share (Based on net assets of $8,696,812 and 1,310,557 shares of beneficial interest issued and outstanding) | $ | 6.64 | ||
Maximum sales charge (5.50% of offering price) | 0.39 | |||
Maximum offering price to public | $ | 7.03 | ||
Class B Shares: | ||||
Net asset value and offering price per share (Based on net assets of $641,815 and 97,537 shares of beneficial interest issued and outstanding) | $ | 6.58 | ||
Class C Shares: | ||||
Net asset value and offering price per share (Based on net assets of $901,988 and 137,125 shares of beneficial interest issued and outstanding) | $ | 6.58 | ||
Class R Shares: | ||||
Net asset value and offering price per share (Based on net assets of $66,381 and 10,000 shares of beneficial interest issued and outstanding) | $ | 6.64 | ||
Class Y Shares: | ||||
Net asset value and offering price per share (Based on net assets of $24,340,095 and 3,655,796 shares of beneficial interest issued and outstanding) | $ | 6.66 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statements of Operations
For the | For the | |||||||
five months ended | year ended | |||||||
August 31, 2010 | March 31, 2010 | |||||||
Investment income: | ||||||||
Dividends (net of foreign withholding taxes of $627 and $0, respectively) | $ | 349,682 | $ | 842,466 | ||||
Dividends from Affiliated Money Market Fund | 1,102 | — | ||||||
Interest | 184 | 770 | ||||||
Total income | 350,968 | 843,236 | ||||||
Expenses: | ||||||||
Investment advisory fee | 106,306 | 249,665 | ||||||
Registration fees | 35,257 | 43,538 | ||||||
Transfer agent fees | 21,348 | 56,645 | ||||||
Distribution fees | ||||||||
Class A | 9,691 | 19,616 | ||||||
Class B | 2,926 | 6,881 | ||||||
Class C | 4,035 | 7,154 | ||||||
Class R | 149 | 327 | ||||||
Reports to shareholders | 24,490 | 31,551 | ||||||
Administrative services fees | 23,385 | 55,584 | ||||||
Professional fees | 21,254 | 51,509 | ||||||
Custody | 3,078 | 7,909 | ||||||
Trustees’ and officers’ fees and benefits | 7,046 | 19,119 | ||||||
Other | 8,193 | 17,570 | ||||||
Total expenses | 267,158 | 567,068 | ||||||
Expense reduction | 95,488 | 168,178 | ||||||
Less credits earned on cash balances | -0- | 11 | ||||||
Net expenses | 171,670 | 398,879 | ||||||
Net investment income | 179,298 | 444,357 | ||||||
Realized and unrealized gain/loss: | ||||||||
Realized gain/loss: | ||||||||
Investments | 3,118,222 | 129,229 | ||||||
Foreign currency transactions | (1,395 | ) | -0- | |||||
Net realized gain | 3,116,827 | 129,229 | ||||||
Unrealized appreciation/depreciation: | ||||||||
Beginning of the period | 8,070,769 | (6,328,666 | ) | |||||
End of the period: | ||||||||
Investments | 149,451 | 8,070,769 | ||||||
Foreign currency translation | (5 | ) | -0- | |||||
149,446 | 8,070,769 | |||||||
Net unrealized appreciation (depreciation) during the period | (7,921,323 | ) | 14,399,435 | |||||
Net realized and unrealized gain (loss) | (4,804,496 | ) | 14,528,664 | |||||
Net increase (decrease) in net assets from operations | $ | (4,625,198 | ) | $ | 14,973,021 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Core Equity Fund
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Statements of Changes in Net Assets
For the | For the | For the | ||||||||||
five months ended | year ended | year ended | ||||||||||
August 31, 2010 | March 31, 2010 | March 31, 2009 | ||||||||||
From investment activities: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 179,298 | $ | 444,357 | $ | 389,093 | ||||||
Net realized gain/loss | 3,116,827 | 129,229 | (6,335,505 | ) | ||||||||
Net unrealized appreciation/depreciation during the period | (7,921,323 | ) | 14,399,435 | (5,078,755 | ) | |||||||
Change in net assets from operations | (4,625,198 | ) | 14,973,021 | (11,025,167 | ) | |||||||
Distributions from net investment income: | ||||||||||||
Class A Shares | -0- | (99,387 | ) | (26,778 | ) | |||||||
Class B Shares | -0- | (4,003 | ) | (1,659 | ) | |||||||
Class C Shares | -0- | (4,806 | ) | -0- | ||||||||
Class R Shares | -0- | (656 | ) | (25 | ) | |||||||
Class Y Shares | -0- | (419,107 | ) | (246,199 | ) | |||||||
Total distributions | -0- | (527,959 | ) | (274,661 | ) | |||||||
Net change in net assets from investment activities | (4,625,198 | ) | 14,445,062 | (11,299,828 | ) | |||||||
From capital transactions: | ||||||||||||
Proceeds from shares sold | 2,469,613 | 12,550,339 | 40,384,822 | |||||||||
Net asset value of shares issued through dividend reinvestment | -0- | 473,462 | 231,688 | |||||||||
Cost of shares repurchased | (6,479,983 | ) | (11,783,890 | ) | (14,399,072 | ) | ||||||
Net change in net assets from capital transactions | (4,010,370 | ) | 1,239,911 | 26,217,438 | ||||||||
Total increase (decrease) in net assets | (8,635,568 | ) | 15,684,973 | 14,914,610 | ||||||||
Net assets: | ||||||||||||
Beginning of the period | 43,282,659 | 27,597,686 | 12,680,076 | |||||||||
End of the period (including accumulated undistributed net investment income of $232,349, $54,446 and $138,595 respectively) | $ | 34,647,091 | $ | 43,282,659 | $ | 27,597,686 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Core Equity Fund
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Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class A | ||||||||||||||||
August 27, 2007 | ||||||||||||||||
(commencement of | ||||||||||||||||
Five months ended | Year ended | Year ended | operations) to | |||||||||||||
August 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2010 | 2009 | 2008 | |||||||||||||
Net asset value, beginning of the period | $ | 7.46 | $ | 4.97 | $ | 8.91 | $ | 10.00 | ||||||||
Net investment income(a) | 0.03 | 0.07 | 0.09 | 0.06 | ||||||||||||
Net realized and unrealized gain (loss) | (0.85 | ) | 2.50 | (4.00 | ) | (1.01 | ) | |||||||||
Total from investment operations | (0.82 | ) | 2.57 | (3.91 | ) | (0.95 | ) | |||||||||
Less: | ||||||||||||||||
Distributions from net investment income | -0- | 0.08 | 0.03 | 0.11 | ||||||||||||
Distributions from net realized gain | -0- | -0- | -0- | 0.03 | ||||||||||||
Total distributions | -0- | 0.08 | 0.03 | 0.14 | ||||||||||||
Net asset value, end of the period | $ | 6.64 | $ | 7.46 | $ | 4.97 | $ | 8.91 | ||||||||
Total return* | (10.99 | )%(b) | 51.84 | %(c) | (43.89 | )%(c) | (9.69 | )%(c)** | ||||||||
Net assets at end of the period (in millions) | $ | 8.7 | $ | 9.4 | $ | 4.4 | $ | 3.4 | ||||||||
Ratio of expenses to average net assets* | 1.20 | %(d) | 1.20 | % | 1.20 | % | 1.20 | % | ||||||||
Ratio of net investment income to average net assets* | 0.96 | %(d) | 1.00 | % | 1.47 | % | 1.11 | % | ||||||||
Portfolio turnover(e) | 61 | % | 48 | % | 66 | % | 14 | % | ||||||||
* If certain expenses had not been voluntarily assumed by the Adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||
Ratio of expenses to average net assets | 1.80 | %(d) | 1.64 | % | 3.34 | % | 4.14 | % | ||||||||
Ratio of net investment income (loss) to average net assets | 0.36 | %(d) | 0.56 | % | (0.67 | )% | (1.83 | )% | ||||||||
** | Non-annualized |
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $9,248. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Van Kampen Core Equity Fund
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Financial Highlights—(continued)
Class B shares | ||||||||||||||||
August 27, 2007 | ||||||||||||||||
(commencement of | ||||||||||||||||
Five months ended | Year ended | Year ended | operations) to | |||||||||||||
August 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2010 | 2009 | 2008 | |||||||||||||
Net asset value, beginning of the period | $ | 7.42 | $ | 4.95 | $ | 8.92 | $ | 10.00 | ||||||||
Net investment income(a) | 0.01 | 0.01 | 0.05 | 0.05 | ||||||||||||
Net realized and unrealized gain (loss) | (0.85 | ) | 2.50 | (4.00 | ) | (1.01 | ) | |||||||||
Total from investment operations | (0.84 | ) | 2.51 | (3.95 | ) | (0.96 | ) | |||||||||
Less: | ||||||||||||||||
Distributions from net investment income | -0- | 0.04 | 0.02 | 0.09 | ||||||||||||
Distributions from net realized gain | -0- | -0- | -0- | 0.03 | ||||||||||||
Total distributions | -0- | 0.04 | 0.02 | 0.12 | ||||||||||||
Net asset value, end of the period | $ | 6.58 | $ | 7.42 | $ | 4.95 | $ | 8.92 | ||||||||
Total return* | (11.32 | )%(b) | 50.69 | %(c) | (44.35 | )%(c) | (9.79 | )%(c)(d)** | ||||||||
Net assets at end of the period (in millions) | $ | 0.6 | $ | 0.7 | $ | 0.5 | $ | 0.2 | ||||||||
Ratio of expenses to average net assets* | 1.95 | %(e) | 1.96 | % | 1.97 | % | 1.38 | %(d) | ||||||||
Ratio of net investment income to average net assets* | 0.23 | %(e) | 0.23 | % | 0.75 | % | 0.95 | %(d) | ||||||||
Portfolio turnover(f) | 61 | % | 48 | % | 66 | % | 14 | % | ||||||||
* If certain expenses had not been voluntarily assumed by the Adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||
Ratio of expenses to average net assets | 2.54 | %(e) | 2.40 | % | 4.13 | % | 4.53 | %(d) | ||||||||
Ratio of net investment income (loss) to average net assets | (0.35 | )%(e) | (0.21 | )% | (1.41 | )% | (2.20 | )%(d) | ||||||||
** | Non-annualized |
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income(Loss) to Average Net Assets reflect actual 12b-1 fees of less than 1%. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $698. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Van Kampen Core Equity Fund
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Financial Highlights—(continued)
Class C shares | ||||||||||||||||
August 27, 2007 | ||||||||||||||||
(commencement of | ||||||||||||||||
Five months ended | Year ended | Year ended | operations) to | |||||||||||||
August 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2010 | 2009 | 2008 | |||||||||||||
Net asset value, beginning of the period | $ | 7.42 | $ | 4.96 | $ | 8.90 | $ | 10.00 | ||||||||
Net investment income(a) | 0.01 | 0.01 | 0.05 | 0.04 | ||||||||||||
Net realized and unrealized gain (loss) | (0.85 | ) | 2.49 | (3.99 | ) | (1.02 | ) | |||||||||
Total from investment operations | (0.84 | ) | 2.50 | (3.94 | ) | (0.98 | ) | |||||||||
Less: | ||||||||||||||||
Distributions from net investment income | -0- | 0.04 | -0- | 0.09 | ||||||||||||
Distributions from net realized gain | -0- | -0- | -0- | 0.03 | ||||||||||||
Total distributions | -0- | 0.04 | -0- | 0.12 | ||||||||||||
Net asset value, end of the period | $ | 6.58 | $ | 7.42 | $ | 4.96 | $ | 8.90 | ||||||||
Total return* | (11.32 | )%(b) | 50.51 | %(c) | (44.27 | )%(c)(d) | (9.96 | )%(c)(d)** | ||||||||
Net assets at end of the period (in millions) | $ | 0.9 | $ | 0.9 | $ | 0.5 | $ | 0.4 | ||||||||
Ratio of expenses to average net assets* | 1.95 | %(e) | 2.01 | % | 1.90 | %(d) | 1.74 | %(d) | ||||||||
Ratio of net investment income to average net assets* | 0.21 | %(e) | 0.19 | % | 0.74 | %(d) | 0.66 | %(d) | ||||||||
Portfolio turnover(f) | 61 | % | 48 | % | 66 | % | 14 | % | ||||||||
* If certain expenses had not been voluntarily assumed by the Adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||
Ratio of expenses to average net assets | 2.55 | %(e) | 2.45 | % | 4.00 | %(d) | 4.79 | %(d) | ||||||||
Ratio of net investment income (loss) to average net assets | (0.39 | %)(e) | (0.25 | )% | (1.36 | )%(d) | (2.39 | )%(d) | ||||||||
** | Non-annualized |
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income (Loss) to Average Net Assets reflect actual 12b-1 fees of less than 1%. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $962. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
17 Invesco Van Kampen Core Equity Fund
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Financial Highlights—(continued)
Class R shares | ||||||||||||||||
August 27, 2007 | ||||||||||||||||
(commencement of | ||||||||||||||||
Five months ended | Year ended | Year ended | operations) to | |||||||||||||
August 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2010 | 2009 | 2008 | |||||||||||||
Net asset value, beginning of the period | $ | 7.47 | $ | 4.98 | $ | 8.91 | $ | 10.00 | ||||||||
Net investment income(a) | 0.02 | 0.05 | 0.07 | 0.05 | ||||||||||||
Net realized and unrealized gain (loss) | (0.85 | ) | 2.51 | (4.00 | ) | (1.01 | ) | |||||||||
Total from investment operations | (0.83 | ) | 2.56 | (3.93 | ) | (0.96 | ) | |||||||||
Less: | ||||||||||||||||
Distributions from net investment income | -0- | 0.07 | -0-(b | ) | 0.10 | |||||||||||
Distributions from net realized gain | -0- | -0- | -0- | 0.03 | ||||||||||||
Total distributions | -0- | 0.07 | -0- | 0.13 | ||||||||||||
Net asset value, end of the period | $ | 6.64 | $ | 7.47 | $ | 4.98 | $ | 8.91 | ||||||||
Total return* | (11.11 | )%(c) | 51.41 | %(d) | (44.08 | )%(d) | (9.80 | )%(d)** | ||||||||
Net assets at end of the period (in millions) | $ | 0.1 | $ | 0.1 | $ | 0.1 | $ | 0.1 | ||||||||
Ratio of expenses to average net assets* | 1.45 | %(e) | 1.45 | % | 1.45 | % | 1.45 | % | ||||||||
Ratio of net investment income to average net assets* | 0.71 | %(e) | 0.74 | % | 1.03 | % | 0.85 | % | ||||||||
Portfolio turnover(f) | 61 | % | 48 | % | 66 | % | 14 | % | ||||||||
* If certain expenses had not been voluntarily assumed by the Adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||
Ratio of expenses to average net assets | 2.05 | %(e) | 1.89 | % | 4.09 | % | 4.61 | % | ||||||||
Ratio of net investment income (loss) to average net assets | 0.11 | %(e) | 0.30 | % | (1.61 | )% | (2.31 | )% | ||||||||
** | Non-annualized |
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Assumes reinvestment of all distributions for the period. These returns include combined Rule 12b-1 fees and service fees of up to 0.50% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $71. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
18 Invesco Van Kampen Core Equity Fund
Table of Contents
Financial Highlights—(continued)
Class Y sharesÙ | ||||||||||||||||
August 27, 2007 | ||||||||||||||||
(commencement of | ||||||||||||||||
Five months ended | Year ended | Year ended | operations) to | |||||||||||||
August 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2010 | 2009 | 2008 | |||||||||||||
Net asset value, beginning of the period | $ | 7.47 | $ | 4.98 | $ | 8.92 | $ | 10.00 | ||||||||
Net investment income(a) | 0.04 | 0.08 | 0.12 | 0.08 | ||||||||||||
Net realized and unrealized gain (loss) | (0.85 | ) | 2.50 | (4.02 | ) | (1.02 | ) | |||||||||
Total from investment operations | (0.81 | ) | 2.58 | (3.90 | ) | (0.94 | ) | |||||||||
Less: | ||||||||||||||||
Distributions from net investment income | -0- | 0.09 | 0.04 | 0.11 | ||||||||||||
Distributions from net realized gain | -0- | -0- | 0 | 0.03 | ||||||||||||
Total distributions | -0- | 0.09 | 0.04 | 0.14 | ||||||||||||
Net asset value, end of the period | $ | 6.66 | $ | 7.47 | $ | 4.98 | $ | 8.92 | ||||||||
Total return* | (10.84 | )%(b) | 52.01 | %(c) | (43.75 | )%(c) | (9.57 | )%(c)** | ||||||||
Net assets at end of the period (in millions) | $ | 24.3 | $ | 32.1 | $ | 22.1 | $ | 8.7 | ||||||||
Ratio of expenses to average net assets* | 0.95 | %(d) | 0.95 | % | 0.95 | % | 0.95 | % | ||||||||
Ratio of net investment income to average net assets* | 1.19 | %(d) | 1.25 | % | 2.02 | % | 1.35 | % | ||||||||
Portfolio turnover(e) | 61 | % | 48 | % | 66 | % | 14 | % | ||||||||
* If certain expenses had not been voluntarily assumed by the Adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||
Ratio of expenses to average net assets | 1.53 | %(d) | 1.39 | % | 2.44 | % | 4.11 | % | ||||||||
Ratio of net investment income (loss) to average net assets | 0.61 | %(d) | 0.81 | % | 0.53 | % | (1.81 | )% | ||||||||
** | Non-annualized |
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period. These do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $28,037. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
Ù | On June 1, 2010, the Fund’s former Class I shares were reorganized to Class Y shares. |
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Core Equity Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Core Equity Fund (the “Acquired Fund”), an investment portfolio of Van Kampen Equity Trust. The Acquired Fund was reorganized on June 1, 2010 (The “Reorganization Date”) through the transfer of all its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C, Class R and Class I shares received Class A, Class B, Class C, Class R and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
On August 31, 2010, the Fund’s fiscal year-end changed from March 31 to August 31.
The Fund’s investment objective is capital growth and income.
The Fund currently consists of five different classes of shares: Class A, Class B, Class C, Class R and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”).
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Class B shares and Class C shares are sold with a CDSC. Class R and Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the |
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laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | ||
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
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NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $1 billion | 0 | .65% | ||
Next $1.5 billion | 0 | .60% | ||
Over $2.5 billion | 0 | .55% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $46,595 and $249,665 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets for the period April 1, 2010 to May 31, 2010 and for the year ended March 31, 2010, respectively.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class R and Class Y shares to 1.20%, 1.95%, 1.95%, 1.45% and 0.95% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Prior to the Reorganization, Van Kampen had voluntarily waived $12,380 and $168,178 of advisory fees and/or reimbursed expenses of the Acquired Fund for the period April 1, 2010 to May 31, 2010 and for the year ended March 31, 2010, respectively.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the period ended August 31, 2010, the Adviser waived advisory fees under of $83,108 under this agreement.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $5,596 and $23,800 to VKII for the period April 1, 2010 to May 31, 2010 and the year ended March 31, 2010, respectively. For the period ended August 31, 2010 and the year ended March 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
Prior to the Reorganization, under a legal services agreement, VKII provided legal services to the Acquired Fund. Pursuant to such agreement, the Acquired Fund paid $4,520 and $18,700 to VKII for the period April 1, 2010 to May 31, 2010 and the year ended March 31, 2010, respectively.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended August 31, 2010, IIS was paid $10,408 for providing such services. Prior to the Reorganization, the Acquired Fund paid $8,569 and $43,800 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent, for the period April 1, 2010 to May 31, 2010 and for the year ended March 31, 2010. For the period ended August 31, 2010 and the year ended March 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares, Class C shares and Class R shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets, up to 1.00% each of Class B and Class C average daily net assets and up to 0.50% of Class R average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B, Class C and Class R shares. Pursuant to such agreements, the Acquired Fund paid $6,950 and $33,978 to VKFI for the period April 1, 2010 to May 31, 2010 and the year ended March 31, 2010, respectively.
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For the period ended August 31, 2010 and the year ended March 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $646 in front-end sales commissions from the sale of Class A shares and $0, $702 and $54 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period April 1, 2010 to May 31, 2010, VKFI retained $1,742 in front-end sales commissions from the sale of Class A shares and $170, for CDSC imposed on redemptions by shareholders. For the year ended March 31, 2010, VKFI retained $9,200 in front-end sales commissions from the sale of Class A shares and $1,300, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended August 31, 2010, the Fund paid legal fees of $0 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. For the period April 1, 2010 to May 31, 2010, the Acquired Fund recognized expenses of $0 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund. For the year ended March 31, 2010, the Acquired Fund recognized expenses of $1,300 representing legal services provided by Skadden.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Five Months Ended August 31, 2010 and the Years Ended March 31, 2010 and 2009:
August 31, | March 31, | March 31, | ||||||||||
2010 | 2010 | 2009 | ||||||||||
Ordinary income | $ | -0- | $ | 527,959 | $ | 274,661 | ||||||
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Tax Components of Net Assets at Period-End:
August 31, | ||||
2010 | ||||
Undistributed ordinary income | $ | 232,349 | ||
Net unrealized appreciation — investments | 137,397 | |||
Net unrealized appreciation (depreciation) — other | (5 | ) | ||
Capital loss carryforward | (3,306,064 | ) | ||
Shares of beneficial interest | 37,583,414 | |||
Total net assets | $ | 34,647,091 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $3,117,488 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 3,306,064 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund from April 1, 2010 to August 31, 2010 was $22,612,393 and $28,765,254, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,492,567 | ||
Aggregate unrealized (depreciation) of investment securities | (1,355,170 | ) | ||
Net unrealized appreciation of investment securities | $ | 137,397 | ||
Cost of investments for tax purposes is $34,607,651. |
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on August 31, 2010, undistributed net investment income was decreased by $1,395 and undistributed net realized gain (loss) was increased by $1,395. This reclassification had no effect on the net assets of the Fund.
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NOTE 9—Share Information
For the | For the | For the | ||||||||||||||||||||||
five months ended | year ended | year ended | ||||||||||||||||||||||
August 31, 2010(a) | March 31, 2010 | March 31, 2009 | ||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
Sales: | ||||||||||||||||||||||||
Class A | 170,238(b | ) | $ | 1,227,440(b | ) | 843,375 | $ | 5,213,461 | 1,152,806 | $ | 6,951,982 | |||||||||||||
Class B | 20,992 | 149,606 | 71,384 | 466,217 | 141,873 | 928,123 | ||||||||||||||||||
Class C | 17,604 | 131,855 | 61,559 | 417,348 | 183,737 | 1,178,458 | ||||||||||||||||||
Class R | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||
Class Y | 133,592 | 960,712 | 1,017,248 | 6,453,313 | 5,402,879 | 31,326,259 | ||||||||||||||||||
Total sales | 342,426 | $ | 2,469,613 | 1,993,566 | $ | 12,550,339 | 6,881,295 | $ | 40,384,822 | |||||||||||||||
Dividend reinvestment: | ||||||||||||||||||||||||
Class A | -0- | $ | -0- | 13,393 | $ | 93,480 | 4,512 | $ | 24,774 | |||||||||||||||
Class B | -0- | -0- | 512 | 3,564 | 264 | 1,447 | ||||||||||||||||||
Class C | -0- | -0- | 505 | 3,513 | -0- | -0- | ||||||||||||||||||
Class R | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||
Class Y | -0- | -0- | 53,349 | 372,905 | 37,426 | 205,467 | ||||||||||||||||||
Total dividend reinvestment | -0- | $ | -0- | 67,759 | $ | 473,462 | 42,202 | $ | 231,688 | |||||||||||||||
Repurchases: | ||||||||||||||||||||||||
Class A | (127,084 | ) | $ | (906,215 | ) | (475,278 | ) | $ | (3,126,163 | ) | (647,557 | ) | $ | (3,987,742 | ) | |||||||||
Class B | (16,763 | )(b) | (115,613 | )(b) | (80,299 | ) | (539,261 | ) | (58,501 | ) | (322,823 | ) | ||||||||||||
Class C | (8,455 | ) | (60,874 | ) | (33,342 | ) | (208,105 | ) | (127,752 | ) | (815,127 | ) | ||||||||||||
Class R | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||
Class Y | (775,606 | ) | (5,397,281 | ) | (1,219,233 | ) | (7,910,361 | ) | (1,968,081 | ) | (9,273,380 | ) | ||||||||||||
Total repurchases | (927,908 | ) | (6,479,983 | ) | (1,808,152 | ) | $ | (11,783,890 | ) | (2,801,891 | ) | $ | (14,399,072 | ) | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 89% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
In addition, 0.2% of the outstanding shares of the Fund are owned by Invesco or an investment advisor under common control with Invesco. | ||
(b) | Includes automatic conversion of 1,176 Class B shares into 1,167 Class A shares at a value of $7,981. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 10—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Van Kampen Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Core Equity Fund (formerly known as Van Kampen Core Equity Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended March 31, 2010 and prior were audited by other independent auditors whose report dated May 18, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
26 Invesco Van Kampen Core Equity Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 947.22 | $ | 5.89 | $ | 1,019.16 | $ | 6.11 | 1.20 | % | ||||||||||||||||||
B | 1,000.00 | 942.69 | 9.55 | 1,015.38 | 9.91 | 1.95 | ||||||||||||||||||||||||
C | 1,000.00 | 942.69 | 9.55 | 1,015.38 | 9.91 | 1.95 | ||||||||||||||||||||||||
R | 1,000.00 | 945.87 | 7.11 | 1,017.90 | 7.38 | 1.45 | ||||||||||||||||||||||||
Y | 1,000.00 | 947.37 | 4.66 | 1,020.42 | 4.84 | 0.95 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
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Approval of Investment Advisory and Sub-Advisory Agreements
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen Core Equity Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the
28 Invesco Van Kampen Core Equity Fund
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terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Core Equity Fund was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 3,157,965 | 167,866 | 289,303 | 0 |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | �� | |||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/ completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov.
The SEC file numbers for the Fund are 811-09913 and 333-36074.
The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
VK-CEQ-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Invesco Van Kampen Equity and Income Fund
Annual Report to Shareholders August 31, 2010
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
22 | Financial Statements | |
25 | Financial Highlights | |
28 | Notes to Financial Statements | |
37 | Auditor’s Report | |
38 | Fund Expenses | |
39 | Approval of Investment Advisory and Sub-Advisory Agreements | |
41 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Van Kampen Equity and Income Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Van Kampen Equity and Income Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the eight months ended August 31, 2010, Invesco Van Kampen Equity and Income Fund at net asset value (NAV) underperformed the Barclays Capital U.S. Government/Credit Index. As the Fund uses a bottom-up stock selection approach, stock selection in various sectors was the primary reason the Fund underperformed the index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -2.40 | % | ||
Class B Shares | -2.40 | |||
Class C Shares | -2.81 | |||
Class R Shares | -2.51 | |||
Class Y Shares | -2.15 | |||
Institutional Class Shares* | -2.21 | |||
Russell 1000 Value Index ▼ (Broad Market Index) | -3.03 | |||
Barclays Capital U.S. Government/Credit Index ▼ (Style-Specific Index) | 8.67 | |||
▼ | Lipper Inc. | |
* | Share class incepted during the reporting period. For a detailed explanation of Fund performance see page 7. |
How we invest
We call our investment philosophy “value with a catalyst.” We believe that undervalued companies which are experiencing positive changes (i.e., catalysts) have the potential to generate long-term stock price growth for shareholders. We generally seek to identify companies that are out of favor with investors, under-earning relative to their potential and attractively valued. For these companies, we attempt to identify catalysts that may improve the financial results and/or correct the undervaluation. Examples of catalysts typically include improved operational efficiency, changing industry dynamics and/or a change in management.
We initially identify potential investments through a series of quantitative screens including, but not limited to, return on capital and enterprise value to sales metrics. We then conduct fundamental research on the most attractive opportunities. The research process includes a thorough review of a company’s financial statements, an evaluation of its competitive position
and stability, and meetings with its executives. During the research process, we also value the company under various scenarios to determine if the investment is an attractive opportunity relative to its risks. This is also where we typically identify the positive catalyst, a pre-requisite for potential investment. Finally, we generally set a price target for a stock based on normalized earnings and historical valuation multiples.
In short, our objective is to exploit negative sentiment toward a company’s stock by analyzing the company’s operations in the context of a cyclical environment and identifying one or more catalysts that may improve the company’s financial performance. Improved financial performance, in turn, has the potential to drive the company’s stock price higher.
We typically sell an investment when it reaches our estimate of fair value or when we identify a more attractive investment opportunity.
The Fund also invests in investment-grade corporate bonds, convertible
securities and U.S. government-issued bonds. The fixed income portion helps to reduce volatility compared to an equity-only portfolio and may be able to provide downside protection in an uncertain market environment.
Market conditions and your Fund
At the beginning of the reporting period, riskier assets, like stocks, were outperforming securities considered safe havens, like U.S. Treasuries. This continued through the middle of April 2010. However, renewed credit problems in Europe and the market corrections that occurred in May, June and August, created a more uncertain environment, which prompted many investors to favor safety over risk. Although recent market volatility created challenges, it also created some investment opportunities, as companies with positive fundamentals became more attractively valued. Also, despite the market finishing lower at the reporting period end, there were also a number of positives, including improved market liquidity, lean corporate infrastructures and merger and acquisition activity.
Within the fixed income markets, the broad U.S. bond market (as measured by the Barclays Capital U.S. Aggregate Index) generated a positive total return for the trailing eight months, as falling interest rates across maturities combined with tighter credit spreads (the difference between the yields of U.S. Treasuries and other types of fixed income securities that carry credit risk) reflected the increased prices of fixed income assets. During the second quarter of 2010, sovereign risks in Europe caused investors to scale back their risk profile and embrace the safe haven of U.S. government-related securities.
In the equity portion of the Fund, an overweight allocation to the consumer discretionary sector was one of the largest contributors to performance of the Fund, as media stocks performed well within this sector due to an increase in advertisement revenue over the reporting period.
Also, stock selection in health care was a contributor to Fund performance.
Portfolio Composition
By security type
Common Stocks | 61.5 | % | ||
Convertible Corporate Obligations | 16.3 | |||
Corporate Bonds | 10.2 | |||
United States Treasury Obligations | 6.9 | |||
Convertible Preferred Stocks | 1.9 | |||
Foreign Government Obligations | 0.3 | |||
Municipal Bonds | 0.3 | |||
Asset Backed Securities | 0.1 | |||
Money Markets Plus Other | ||||
Assets In Excess of Liabilities | 2.5 |
Top 10 Equity Holdings*
1. | JPMorgan Chase & Co. | 3.0 | % | |||||
2. | Marsh & McLennan Cos., Inc. | 2.2 | ||||||
3. | General Electric Co. | 2.1 | ||||||
4. | Viacom, Inc., Class B | 1.9 | ||||||
5. | eBay, Inc. | 1.7 | ||||||
6. | Kraft Foods, Inc., Class A | 1.5 | ||||||
7. | American Electric Power Co., Inc. | 1.5 | ||||||
8. | Occidental Petroleum Corp. | 1.5 | ||||||
9. | Bank of America Corp. | 1.4 | ||||||
10. | Bristol-Myers Squibb Co. | 1.3 |
Total Net Assets | $10.7 billion | |||
Total Number of Holdings* | 330 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Van Kampen Equity and Income Fund |
Table of Contents
Notably, Genzyme’s stock price rose on the announcement from Sanofi-aventis Pharmaceuticals of its interest in acquiring Genzyme. We sold Genzyme on the acquisition announcement and resulting run-up in stock price.
One of the largest detractors from relative and absolute performance for the Fund was the financials sector. In general, financial stocks performed strongly over the reporting period. However, the Fund was underweight in the financials sector relative to its broad market benchmark, and our financial stocks did not appreciate as much as those of the index. In general, we focused on what we believed were lower risk financial companies with stronger balance sheets and less credit risk given the systemic risk in most financial stocks. However, the portfolio had no exposure to REITs (real estate investment trusts), which performed well throughout the period. The Fund’s lack of exposure to REIT’s was based on our concern that valuations were high and that the commercial real estate market had weakened.
Technology stocks also adversely affected relative Fund performance. The Fund was overweight in the sector versus the Russell 1000 Value Index and was adversely affected by its exposure to stocks in the hardware and equipment industry. Notably detracting from Fund performance was Hewlett-Packard, as the stock sold off significantly on the announcement that the CEO was leaving.
Finally, stock selection in the energy sector also detracted from relative Fund performance. The Fund had most of its energy sector exposure in exploration and production companies. We had exposure to British Petroleum and Anadarko Petroleum. Each company was negatively affected by the oil spill in the Gulf of Mexico. During the period we eliminated our position in British Petroleum and reduced our exposure to Anadarko Petroleum.
In general, the fixed income portion of the Fund generated positive returns for the reporting period. Sector selection contributed to both positive absolute returns and performance relative to the Fund’s style-specific index. A measured overweight position in investment grade corporate credit and to the financials sector contributed favorably. Compared to the style-specific index, security selection was a slight detractor from overall Fund returns due to the negative effect of holdings within the energy sector, government-related industries and the consumer non-cyclical corporate sub sector.
The contribution to Fund performance from duration positioning was mixed over the period, but overall it had a small negative effect. The Fund maintained a shorter-than-benchmark duration positioning relative to the style-specific index as interest rates trended lower over most of the reporting period. U.S. Treasury note futures, a derivative instrument, were used to actively manage portfolio duration.
The contribution to performance from the Fund’s yield curve positioning was another small detractor from performance relative to the style-specific index. Near the end of the reporting period, the Fund was mainly invested in short-intermediate maturities and did not fully participate in the upside performance from falling yields in the longer end of the yield curve.
Equity markets experienced a strong recovery during the period covered by this report. We believe that market volatility and the market correction that began in the second quarter of 2010 have created opportunities to invest in companies with attractive valuations and strong fundamentals.
As always, we would like to caution investors against making investment decisions based on short-term performance. We recommend that you consult a financial adviser to discuss your individual financial program.
Thank you for your investment in Invesco Van Kampen Equity and Income Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Thomas Bastian
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity and Income Fund. He joined Invesco in 2010. Mr. Bastian earned a B.A. in accounting from St. John’s University and an M.B.A. in finance from the University of Michigan. He is a member of the CFA Institute and the Houston Society of Financial Analysts.
Cindy Brien
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity and Income Fund. She joined Invesco in 1996. Ms. Brien earned a B.B.A. from The University of Texas at Austin.
Chuck Burge
Portfolio manager, is manager of Invesco Van Kampen Equity and Income Fund. He joined Invesco in 2002. Mr. Burge earned a B.S. in economics from Texas A&M University and an M.B.A. in finance from Rice University.
Mark Laskin
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity and Income Fund. He joined Invesco in 2010. Mr. Laskin earned a B.A. in history from Swarth-more College and an M.B.A. and M.A. from the Wharton School and Lauder Institute, respectively, of the University of Pennsylvania.
Mary Jayne Maly
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity and Income Fund. She joined Invesco in 2010. Ms. Maly earned a B.A. from the University of Pittsburgh and an M.B.A. from the American Graduate School of International Management. She is a member of the Houston Society of Financial Analysts.
Sergio Marcheli
Portfolio manager, is manager of Invesco Van Kampen Equity and Income Fund. He joined Invesco in 2010. Mr. Marcheli earned a B.B.A. from the University of Houston and an M.B.A. from the University of St. Thomas.
James Roeder
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity and Income Fund. He joined Invesco in 2010. Mr. Roeder earned a B.S. in accounting from Clem-son University and an M.B.A. in economics and finance from the University of Chicago Graduate School of Business. He is a member of the CFA Institute and the Houston Society of Financial Analysts.
5 | Invesco Van Kampen Equity and Income Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class
Fund and index data from 8/31/00
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and
table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each
segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
6 | Invesco Van Kampen Equity and Income Fund |
Table of Contents
Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||||||
Inception (8/3/60) | 10.02 | % | ||||||
10 | Years | 3.07 | ||||||
5 | Years | 0.37 | ||||||
1 | Year | -0.55 | ||||||
Class B Shares | ||||||||
Inception (5/1/92) | 8.92 | % | ||||||
10 | Years | 3.12 | ||||||
5 | Years | 0.88 | ||||||
1 | Year | 0.20 | ||||||
Class C Shares | ||||||||
Inception (7/6/93) | 8.14 | % | ||||||
10 | Years | 2.90 | ||||||
5 | Years | 0.78 | ||||||
1 | Year | 3.47 | ||||||
Class R Shares | ||||||||
Inception (10/1/02) | 5.97 | % | ||||||
5 | Years | 1.28 | ||||||
1 | Year | 5.03 | ||||||
Class Y Shares | ||||||||
Inception (12/22/04) | 2.62 | % | ||||||
5 | Years | 1.79 | ||||||
1 | Year | 5.58 | ||||||
Institutional Class Shares | ||||||||
10 | Years | 3.68 | % | |||||
5 | Years | 1.56 | ||||||
1 | Year | 5.39 |
Effective June 1, 2010, Class A, Class B, Class C, Class I and Class R shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C, Class Y and Class R shares, respectively, of Invesco Van Kampen Equity and Income Fund. Returns shown above for Class A, Class B, Class C, Class R and Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen Equity and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||||
Inception (8/3/60) | 10.00 | % | ||||||
10 | Years | 3.67 | ||||||
5 | Years | 0.58 | ||||||
1 | Year | 8.46 | ||||||
Class B Shares | ||||||||
Inception (5/1/92) | 8.87 | % | ||||||
10 | Years | 3.71 | ||||||
5 | Years | 1.07 | ||||||
1 | Year | 9.64 | ||||||
Class C Shares | ||||||||
Inception (7/6/93) | 8.09 | % | ||||||
10 | Years | 3.51 | ||||||
5 | Years | 0.97 | ||||||
1 | Year | 12.96 | ||||||
Class R Shares | ||||||||
Inception (10/1/02) | 5.78 | % | ||||||
5 | Years | 1.47 | ||||||
1 | Year | 14.42 | ||||||
Class Y Shares | ||||||||
Inception (12/22/04) | 2.25 | % | ||||||
5 | Years | 1.98 | ||||||
1 | Year | 15.06 | ||||||
Institutional Class Shares | ||||||||
10 | Years | 4.27 | % | |||||
5 | Years | 1.74 | ||||||
1 | Year | 14.85 |
Institutional Class shares incepted on June 1, 2010. Performance shown prior to that date is that of the predecessor fund’s Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance.
Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 0.82%, 1.57%, 1.57%, 1.07%, 0.57% and 0.50%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class R, Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally |
accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
7 | Invesco Van Kampen Equity and Income Fund |
Table of Contents
Invesco Van Kampen Equity and Income Fund’s investment objective is to seek the highest possible income consistent with safety of principal. Long-term growth of capital is an important secondary investment objective.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. | |
n | Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets. | |
n | The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. |
Value stocks also may decline in price, even though in theory they are already under priced. | ||
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. | |
n | The ability of the Fund’s equity securities to generate income generally depends on the earnings and the continuing declaration of dividends by the issuers of such securities. The interest income on debt securities generally is affected by prevailing interest rates, which can vary widely over the short-and long-term. If dividends are reduced or discontinues or interest rates drop, distributions to shareholders from the Fund may drop as well. | |
n | If interest rates fall, it is possible that issuers of callable securities held by the Fund will call or prepay their securities before their maturity dates. In this event, the proceeds from the called securities would most likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders and termination of any conversion option on convertible securities. |
n | Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer’s securities and may lead to the issuer’s inability to honor its contractual obligations, including making timely payment of interest and principal. |
About indexes used in this report
n | The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |
n | The Barclays Capital U.S. Government/Credit Index includes Treasuries and agencies that represent the government portion of the index, and includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements to represent the credit interests. | |
n | The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
continued on page 7
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | ACEIX | |||
Class B Shares | ACEQX | |||
Class C Shares | ACERX | |||
Class R Shares | ACESX | |||
Class Y Shares | ACETX | |||
Institutional Shares | ACEKX |
8 | Invesco Van Kampen Equity and Income Fund |
Table of Contents
Schedule of Investments
August 31, 2010
Shares | Value | |||||||
Common Stocks–61.5% | ||||||||
Air Freight & Logistics–0.3% | ||||||||
FedEx Corp. | 444,959 | $ | 34,729,050 | |||||
Apparel Retail–0.3% | ||||||||
Gap, Inc. | 1,968,590 | 33,249,485 | ||||||
Application Software–0.6% | ||||||||
Amdocs Ltd. (Guernsey)(a) | 2,596,104 | 68,095,808 | ||||||
Asset Management & Custody Banks–0.8% | ||||||||
Janus Capital Group, Inc. | 1,854,072 | 16,834,974 | ||||||
State Street Corp. | 1,831,632 | 64,253,650 | ||||||
81,088,624 | ||||||||
Automobile Manufacturers–0.4% | ||||||||
Ford Motor Co.(a) | 3,965,613 | 44,771,771 | ||||||
Broadcasting & Cable TV–1.1% | ||||||||
Comcast Corp., Class A | 6,559,338 | 112,295,867 | ||||||
Broadcasting–Diversified–0.8% | ||||||||
Time Warner Cable, Inc. | 1,659,513 | 85,647,466 | ||||||
Communications Equipment–0.8% | ||||||||
Cisco Systems, Inc.(a) | 4,025,808 | 80,717,450 | ||||||
Computer Hardware–1.7% | ||||||||
Dell, Inc.(a) | 6,005,263 | 70,681,945 | ||||||
Hewlett-Packard Co. | 2,910,098 | 111,980,571 | ||||||
182,662,516 | ||||||||
Consumer Electronics–0.7% | ||||||||
Sony Corp.–ADR (Japan) | 2,623,383 | 73,428,490 | ||||||
Data Processing & Outsourced Services–0.7% | ||||||||
Western Union Co. | 4,652,842 | 72,956,563 | ||||||
Diversified Banks–0.9% | ||||||||
U.S. Bancorp | 1,962,483 | 40,819,646 | ||||||
Wells Fargo & Co. | 2,446,559 | 57,616,465 | ||||||
98,436,111 | ||||||||
Diversified Chemicals–1.7% | ||||||||
Bayer AG–ADR (Germany) | 1,154,003 | 70,620,945 | ||||||
Dow Chemical Co. | 2,207,944 | 53,807,595 | ||||||
PPG Industries, Inc. | 903,646 | 59,487,016 | ||||||
183,915,556 | ||||||||
Diversified Commercial & Professional Services–0.4% | ||||||||
Cintas Corp. | 1,563,219 | 39,846,452 | ||||||
Drug Retail–0.8% | ||||||||
Walgreen Co. | 3,168,081 | 85,158,017 | ||||||
Electric Utilities–3.0% | ||||||||
American Electric Power Co., Inc. | 4,546,533 | 160,992,733 | ||||||
Edison International | 1,292,436 | 43,619,715 | ||||||
Entergy Corp. | 756,489 | 59,641,593 | ||||||
FirstEnergy Corp. | 1,624,307 | 59,335,935 | ||||||
323,589,976 | ||||||||
Food Distributors–0.6% | ||||||||
Sysco Corp. | 2,463,868 | 67,731,731 | ||||||
Health Care Distributors–0.4% | ||||||||
Cardinal Health, Inc. | 1,421,902 | 42,600,184 | ||||||
Health Care Equipment–0.7% | ||||||||
Covidien PLC (Ireland) | 2,204,441 | 77,904,945 | ||||||
Home Improvement Retail–0.8% | ||||||||
Home Depot, Inc. | 3,221,337 | 89,585,382 | ||||||
Human Resource & Employment Services–0.6% | ||||||||
Manpower, Inc. | 878,691 | 37,344,367 | ||||||
Robert Half International, Inc. | 1,360,607 | 29,361,899 | ||||||
66,706,266 | ||||||||
Hypermarkets & Super Centers–1.3% | ||||||||
Wal-Mart Stores, Inc. | 2,704,220 | 135,589,591 | ||||||
Industrial Conglomerates–3.6% | ||||||||
General Electric Co. | 15,425,106 | 223,355,535 | ||||||
Siemens AG–ADR (Germany) | 599,128 | 54,239,058 | ||||||
Tyco International Ltd. (Switzerland) | 2,914,264 | 108,643,762 | ||||||
386,238,355 | ||||||||
Industrial Machinery–0.9% | ||||||||
Dover Corp. | 1,157,790 | 51,822,680 | ||||||
Ingersoll-Rand PLC (Ireland) | 1,519,928 | 49,443,258 | ||||||
101,265,938 | ||||||||
Insurance Brokers–2.2% | ||||||||
Marsh & McLennan Cos., Inc. | 9,793,062 | 232,291,431 | ||||||
Integrated Oil & Gas–4.8% | ||||||||
ConocoPhillips | 1,529,828 | 80,208,882 | ||||||
Exxon Mobil Corp. | 1,174,769 | 69,499,334 | ||||||
Hess Corp. | 1,626,423 | 81,727,756 | ||||||
Occidental Petroleum Corp. | 2,129,763 | 155,643,080 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 2,436,821 | 129,273,354 | ||||||
516,352,406 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Equity and Income Fund
Table of Contents
Shares | Value | |||||||
Integrated Telecommunication Services–0.7% | ||||||||
Verizon Communications, Inc. | 2,468,701 | $ | 72,851,366 | |||||
Internet Software & Services–2.4% | ||||||||
eBay, Inc.(a) | 7,870,814 | 182,917,718 | ||||||
Yahoo!, Inc.(a) | 5,450,103 | 71,287,347 | ||||||
254,205,065 | ||||||||
Investment Banking & Brokerage–1.1% | ||||||||
Charles Schwab Corp. | 6,784,334 | 86,568,102 | ||||||
Morgan Stanley | 1,457,323 | 35,981,305 | ||||||
122,549,407 | ||||||||
Life & Health Insurance–0.5% | ||||||||
Principal Financial Group, Inc. | 2,114,055 | 48,728,968 | ||||||
Managed Health Care–1.2% | ||||||||
UnitedHealth Group, Inc. | 3,946,985 | 125,198,364 | ||||||
Motorcycle Manufacturers–0.2% | ||||||||
Harley-Davidson, Inc. | 989,296 | 24,059,679 | ||||||
Movies & Entertainment–3.1% | ||||||||
Time Warner, Inc. | 4,453,537 | 133,517,039 | ||||||
Viacom, Inc., Class B | 6,308,968 | 198,227,775 | ||||||
331,744,814 | ||||||||
Office Services & Supplies–0.4% | ||||||||
Avery Dennison Corp. | 1,255,183 | 40,818,551 | ||||||
Oil & Gas Equipment & Services–1.0% | ||||||||
Cameron International Corp.(a) | 597,182 | 21,964,354 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 1,493,883 | 79,668,780 | ||||||
101,633,134 | ||||||||
Oil & Gas Exploration & Production–2.0% | ||||||||
Anadarko Petroleum Corp. | 2,382,788 | 109,584,420 | ||||||
Devon Energy Corp. | 1,098,862 | 66,239,402 | ||||||
Noble Energy, Inc. | 541,131 | 37,760,121 | ||||||
213,583,943 | ||||||||
Other Diversified Financial Services–5.0% | ||||||||
Bank of America Corp. | 11,587,489 | 144,264,238 | ||||||
Citigroup, Inc.(a) | 18,328,233 | 68,181,027 | ||||||
JPMorgan Chase & Co. | 8,718,389 | 317,000,624 | ||||||
529,445,889 | ||||||||
Packaged Foods & Meats–2.3% | ||||||||
Kraft Foods, Inc., Class A | 5,396,927 | 161,637,964 | ||||||
Unilever NV (Netherlands) | 3,253,041 | 87,148,968 | ||||||
248,786,932 | ||||||||
Personal Products–0.7% | ||||||||
Avon Products, Inc. | 2,585,060 | 75,225,246 | ||||||
Pharmaceuticals–4.5% | ||||||||
Abbott Laboratories | 1,118,673 | 55,195,326 | ||||||
Bristol-Myers Squibb Co. | 5,225,503 | 136,281,118 | ||||||
Merck & Co., Inc. | 3,219,634 | 113,202,331 | ||||||
Pfizer, Inc. | 6,631,418 | 105,638,489 | ||||||
Roche Holdings AG–ADR (Switzerland) | 2,081,331 | 70,814,582 | ||||||
481,131,846 | ||||||||
Property & Casualty Insurance–0.7% | ||||||||
Chubb Corp. | 1,413,011 | 77,885,166 | ||||||
Regional Banks–1.8% | ||||||||
BB&T Corp. | 1,694,189 | 37,475,461 | ||||||
Fifth Third Bancorp | 3,083,474 | 34,072,388 | ||||||
PNC Financial Services Group, Inc. | 2,386,670 | 121,624,703 | ||||||
193,172,552 | ||||||||
Semiconductor Equipment–0.2% | ||||||||
Lam Research Corp.(a) | 620,087 | 22,391,342 | ||||||
Semiconductors–0.7% | ||||||||
Intel Corp. | 4,055,551 | 71,864,364 | ||||||
Soft Drinks–1.0% | ||||||||
Coca-Cola Co. | 1,072,089 | 59,951,217 | ||||||
Coca-Cola Enterprises, Inc. | 1,810,760 | 51,534,229 | ||||||
111,485,446 | ||||||||
Wireless Telecommunication Services–1.1% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 4,991,513 | 120,694,784 | ||||||
Total Common Stocks–61.5% | 6,584,312,289 | |||||||
Convertible Preferred Stocks–1.9% | ||||||||
Agricultural Products–0.3% | ||||||||
Archer-Daniels-Midland Co., 6.250% | 832,350 | 34,142,997 | ||||||
Electric Utilities–0.4% | ||||||||
Centerpoint Energy, Inc.(c), 3.074% | 1,300,669 | 37,576,327 | ||||||
Health Care Facilities–0.2% | ||||||||
HEALTHSOUTH Corp., Ser A, 6.500% | 27,000 | 21,404,250 | ||||||
Health Care Services–0.1% | ||||||||
Omnicare Capital Trust II, 4.000% | 356,855 | 11,669,159 | ||||||
Office Services & Supplies–0.2% | ||||||||
Avery Dennison Corp., 7.875% | 529,725 | 20,394,412 | ||||||
Oil & Gas Storage & Transportation–0.3% | ||||||||
El Paso Energy Capital Trust I, 4.750% | 875,900 | 32,714,865 | ||||||
Regional Banks–0.4% | ||||||||
KeyCorp Ser A, 7.750% | 427,098 | 44,200,372 | ||||||
Total Convertible Preferred Stocks–1.9% | 202,102,382 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Convertible Corporate Obligations–16.3% | ||||||||||||||||
Advertising–0.6% | ||||||||||||||||
Interpublic Group of Cos, Inc. | 4.750 | % | 03/15/23 | $ | 17,229 | $ | 18,585,784 | |||||||||
Interpublic Group of Cos., Inc. | 4.250 | 03/15/23 | 37,739 | 39,908,992 | ||||||||||||
58,494,776 | ||||||||||||||||
Application Software–0.2% | ||||||||||||||||
Cadence Design Systems, Inc.(d) | 2.625 | 06/01/15 | 17,327 | 19,016,383 | ||||||||||||
Asset Management & Custody Banks–0.1% | ||||||||||||||||
Janus Capital Group, Inc. | 3.250 | 07/15/14 | 5,368 | 5,629,690 | ||||||||||||
Auto Parts & Equipment–0.4% | ||||||||||||||||
BorgWarner, Inc. | 3.500 | 04/15/12 | 31,810 | 45,806,400 | ||||||||||||
Automobile Manufacturers–1.0% | ||||||||||||||||
Ford Motor Co. | 4.250 | 11/15/16 | 60,143 | 83,749,128 | ||||||||||||
Navistar International Corp. | 3.000 | 10/15/14 | 17,645 | 19,343,331 | ||||||||||||
103,092,459 | ||||||||||||||||
Banking–0.6% | ||||||||||||||||
Goldman Sachs Group, Inc.(d) | 1.000 | 03/15/17 | 61,461 | 59,492,404 | ||||||||||||
Biotechnology–2.8% | ||||||||||||||||
Amgen, Inc. | 0.375 | 02/01/13 | 145,000 | 144,637,500 | ||||||||||||
Amylin Pharmaceuticals, Inc. | 3.000 | 06/15/14 | 37,072 | 33,364,800 | ||||||||||||
Gilead Sciences, Inc.(d) | 1.625 | 05/01/16 | 75,120 | 74,556,600 | ||||||||||||
Invitrogen Corp. | 1.500 | 02/15/24 | 45,000 | 49,725,000 | ||||||||||||
302,283,900 | ||||||||||||||||
Broadcasting & Cable TV–0.8% | ||||||||||||||||
Liberty Media LLC | 3.125 | 03/30/23 | 64,249 | 70,192,033 | ||||||||||||
Sinclair Broadcast Group, Inc. | 6.000 | 09/15/12 | 21,235 | 20,385,600 | ||||||||||||
90,577,633 | ||||||||||||||||
Casinos & Gaming–0.7% | ||||||||||||||||
International Game Technology | 3.250 | 05/01/14 | 46,844 | 51,469,845 | ||||||||||||
MGM Resorts International(d) | 4.250 | 04/15/15 | 30,154 | 24,952,435 | ||||||||||||
76,422,280 | ||||||||||||||||
Coal & Consumable Fuels–0.4% | ||||||||||||||||
Massey Energy Co. | 3.250 | 08/01/15 | 53,300 | 46,237,750 | ||||||||||||
Communications Equipment–0.5% | ||||||||||||||||
Ciena Corp. | 0.250 | 05/01/13 | 25,049 | 21,730,008 | ||||||||||||
JDS Uniphase Corp.(d) | 1.000 | 05/15/26 | 34,000 | 31,237,500 | ||||||||||||
52,967,508 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Health Care–1.2% | ||||||||||||||||
LifePoint Hospitals, Inc. | 3.500 | % | 05/15/14 | $ | 46,059 | $ | 43,986,345 | |||||||||
Mylan Labs, Inc. | 1.250 | 03/15/12 | 62,100 | 63,186,750 | ||||||||||||
Wright Medical Group, Inc. | 2.625 | 12/01/14 | 21,330 | 18,317,138 | ||||||||||||
125,490,233 | ||||||||||||||||
Health Care Services–0.4% | ||||||||||||||||
Omnicare, Inc. | 3.250 | 12/15/35 | 54,120 | 45,325,500 | ||||||||||||
Hotels, Resorts & Cruise Lines–0.3% | ||||||||||||||||
Gaylord Entertainment Co.(d) | 3.750 | 10/01/14 | 31,562 | 37,085,350 | ||||||||||||
Industrial Conglomerates–0.1% | ||||||||||||||||
Textron, Inc. | 4.500 | 05/01/13 | 9,876 | 14,702,895 | ||||||||||||
Internet Software & Services–0.5% | ||||||||||||||||
Symantec Corp. | 1.000 | 06/15/13 | 54,340 | 54,951,325 | ||||||||||||
Noncaptive-Consumer Finance–0.3% | ||||||||||||||||
Jefferies Group, Inc. | 3.875 | 11/01/29 | 28,658 | 28,550,034 | ||||||||||||
Oil & Gas Equipment & Services–0.2% | ||||||||||||||||
Cal Dive International, Inc. | 3.250 | 12/15/25 | 25,155 | 23,016,825 | ||||||||||||
Other Diversified Financial Services–0.7% | ||||||||||||||||
Affiliated Managers Group, Inc. | 3.950 | 08/15/38 | 39,246 | 38,902,597 | ||||||||||||
NASDAQ OMX Group, Inc. | 2.500 | 08/15/13 | 33,536 | 33,032,960 | ||||||||||||
71,935,557 | ||||||||||||||||
Pharmaceuticals–1.0% | ||||||||||||||||
Cephalon, Inc. | 2.500 | 05/01/14 | 44,388 | 47,661,615 | ||||||||||||
Endo Pharmaceuticals Holdings, Inc.(d) | 1.750 | 04/15/15 | 28,137 | 31,056,214 | ||||||||||||
King Pharmaceuticals, Inc. | 1.250 | 04/01/26 | 35,517 | 32,853,225 | ||||||||||||
111,571,054 | ||||||||||||||||
Semiconductors–0.8% | ||||||||||||||||
Micron Technology, Inc. | 1.875 | 06/01/14 | 51,757 | 44,834,501 | ||||||||||||
Xilinx, Inc.(d) | 3.125 | 03/15/37 | 40,978 | 36,880,200 | ||||||||||||
81,714,701 | ||||||||||||||||
Steel–0.4% | ||||||||||||||||
Allegheny Technologies, Inc. | 4.250 | 06/01/14 | 33,735 | 42,506,100 | ||||||||||||
Technology–2.0% | ||||||||||||||||
Cadence Design Systems, Inc. | 1.375 | 12/15/11 | 2,649 | 2,596,020 | ||||||||||||
Cadence Design Systems, Inc. | 1.500 | 12/15/13 | 22,000 | 19,772,500 | ||||||||||||
Linear Technology Corp.(d) | 3.000 | 05/01/27 | 36,420 | 36,556,575 | ||||||||||||
Lucent Technologies, Inc., Ser B | 2.875 | 06/15/25 | 76,524 | 68,202,015 | ||||||||||||
SanDisk Corp. | 1.000 | 05/15/13 | 94,995 | 87,632,887 | ||||||||||||
214,759,997 | ||||||||||||||||
Thrifts & Mortgage Finance–0.1% | ||||||||||||||||
MGIC Investment Corp. | 5.000 | 05/01/17 | 8,927 | 8,692,666 | ||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Wireless Telecommunication Services–0.2% | ||||||||||||||||
SBA Communications Corp. | 1.875 | % | 05/01/13 | $ | 24,081 | $ | 25,495,759 | |||||||||
Total Convertible Corporate Obligations–16.3% | 1,745,819,179 | |||||||||||||||
Corporate Bonds–10.2% | ||||||||||||||||
Agency–1.2% | ||||||||||||||||
Federal Home Loan Mortgage Corp. | 3.000 | 07/28/14 | 23,700 | 25,324,635 | ||||||||||||
Federal Home Loan Mortgage Corp. | 4.875 | 06/13/18 | 33,000 | 38,777,557 | ||||||||||||
Federal Home Loan Mortgage Corp. | 6.750 | 03/15/31 | 7,000 | 9,920,103 | ||||||||||||
Federal National Mortgage Association | 4.375 | 10/15/15 | 37,970 | 43,041,379 | ||||||||||||
Federal National Mortgage Association | 6.625 | 11/15/30 | 5,970 | 8,314,357 | ||||||||||||
125,378,031 | ||||||||||||||||
Airlines–0.0% | ||||||||||||||||
Delta Air Lines, Inc. | 6.200 | 07/02/18 | 3,200 | 3,316,000 | ||||||||||||
Automotive–0.0% | ||||||||||||||||
DaimlerChrysler NA Holding Corp. | 7.750 | 01/18/11 | 3,730 | 3,825,846 | ||||||||||||
Automotive Retail–0.1% | ||||||||||||||||
Advance Auto Parts, Inc. | 5.750 | 05/01/20 | 4,300 | 4,574,125 | ||||||||||||
AutoZone, Inc. | 6.500 | 01/15/14 | 5,245 | 5,942,902 | ||||||||||||
10,517,027 | ||||||||||||||||
Banking–3.0% | ||||||||||||||||
Abbey National Treasury Services PLC (United Kingdom)(d) | 3.875 | 11/10/14 | 4,645 | 4,755,614 | ||||||||||||
American Express Co. | 8.125 | 05/20/19 | 3,380 | 4,370,350 | ||||||||||||
Bank of America Corp., Ser L | 5.650 | 05/01/18 | 15,855 | 16,584,854 | ||||||||||||
Bank of America Corp. | 5.750 | 12/01/17 | 2,575 | 2,734,450 | ||||||||||||
Barclays Bank PLC (United Kingdom) | 6.750 | 05/22/19 | 8,290 | 9,859,420 | ||||||||||||
Capital One Bank USA NA | 8.800 | 07/15/19 | 8,625 | 10,954,929 | ||||||||||||
Citibank NA | 1.750 | 12/28/12 | 18,400 | 18,833,627 | ||||||||||||
Citigroup, Inc. | 2.250 | 12/10/12 | 69,000 | 71,462,635 | ||||||||||||
Citigroup, Inc. | 6.125 | 11/21/17 | 11,285 | 12,144,845 | ||||||||||||
Citigroup, Inc. | 6.125 | 05/15/18 | 6,965 | 7,603,318 | ||||||||||||
Citigroup, Inc. | 8.500 | 05/22/19 | 4,075 | 4,995,059 | ||||||||||||
Commonwealth Bank of Australia (Australia)(d) | 5.000 | 10/15/19 | 6,095 | 6,628,385 | ||||||||||||
Credit Suisse (Switzerland) | 5.400 | 01/14/20 | 1,775 | 1,872,206 | ||||||||||||
Credit Suisse New York (Switzerland) | 5.300 | 08/13/19 | 3,630 | 4,013,579 | ||||||||||||
GMAC, Inc. | 2.200 | 12/19/12 | 11,500 | 11,885,719 | ||||||||||||
Goldman Sachs Group, Inc. | 6.150 | 04/01/18 | 15,465 | 16,940,498 | ||||||||||||
Goldman Sachs Group, Inc. | 6.750 | 10/01/37 | 4,475 | 4,624,947 | ||||||||||||
HBOS PLC (United Kingdom)(d) | �� | 6.750 | 05/21/18 | 8,310 | 8,354,916 | |||||||||||
JPMorgan Chase & Co. | 6.000 | 01/15/18 | 7,335 | 8,341,598 | ||||||||||||
KeyBank NA | 3.200 | 06/15/12 | 7,500 | 7,846,316 | ||||||||||||
Lloyds TSB Bank PLC (United Kingdom)(d) | 5.800 | 01/13/20 | 1,360 | 1,419,877 | ||||||||||||
National Australia Bank Ltd. (Australia)(d) | 3.750 | 03/02/15 | 3,250 | 3,419,652 | ||||||||||||
Nationwide Building Society (United Kingdom)(d) | 6.250 | 02/25/20 | 8,640 | 9,618,102 | ||||||||||||
Nordea Bank AB (Sweden)(d) | 4.875 | 01/27/20 | 4,395 | 4,800,389 | ||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Banking–(continued) | ||||||||||||||||
PNC Funding Corp. | 5.125 | % | 02/08/20 | $ | 5,185 | $ | 5,616,978 | |||||||||
PNC Funding Corp. | 6.700 | 06/10/19 | 3,555 | 4,232,594 | ||||||||||||
Rabobank Nederland NV (Netherlands)(d) | 4.750 | 01/15/20 | 8,895 | 9,662,464 | ||||||||||||
Royal Bank of Scotland PLC (United Kingdom) | 4.875 | 03/16/15 | 7,480 | 7,839,235 | ||||||||||||
Santander US Debt SA Unipersonal (Spain)(d) | 3.724 | 01/20/15 | 3,200 | 3,234,977 | ||||||||||||
Standard Chartered Bank (United Kingdom)(d) | 6.400 | 09/26/17 | 2,310 | 2,593,571 | ||||||||||||
Standard Chartered PLC (United Kingdom)(d) | 3.850 | 04/27/15 | 3,730 | 3,880,355 | ||||||||||||
UBS AG Stamford Branch (Switzerland) | 5.875 | 12/20/17 | 5,100 | 5,747,136 | ||||||||||||
UBS AG Stamford CT (Switzerland) | 3.875 | 01/15/15 | 1,435 | 1,491,751 | ||||||||||||
US Bank, NA(c) | 3.778 | 04/29/20 | 7,200 | 7,540,610 | ||||||||||||
Wells Fargo & Co. | 5.625 | 12/11/17 | 14,445 | 16,308,757 | ||||||||||||
322,213,713 | ||||||||||||||||
Brokerage–0.2% | ||||||||||||||||
Bear Stearns Co., Inc. | 7.250 | 02/01/18 | 7,950 | 9,596,155 | ||||||||||||
Credit Suisse New York (Switzerland) | 6.000 | 02/15/18 | 1,647 | 1,802,840 | ||||||||||||
Merrill Lynch & Co., Inc. | 6.875 | 04/25/18 | 8,375 | 9,227,127 | ||||||||||||
20,626,122 | ||||||||||||||||
Building Materials–0.0% | ||||||||||||||||
Holcim US Finance Sarl & Cie SCS (Luxembourg)(d) | 6.000 | 12/30/19 | 1,885 | 2,085,870 | ||||||||||||
Chemicals–0.0% | ||||||||||||||||
Potash Corp. of Saskatchewan, Inc. (Canada) | 5.875 | 12/01/36 | 2,175 | 2,426,768 | ||||||||||||
Diversified Banks–0.3% | ||||||||||||||||
Bank of Nova Scotia (Canada) | 2.375 | 12/17/13 | 5,955 | 6,150,419 | ||||||||||||
HSBC Bank PLC (United Kingdom)(d) | 4.125 | 08/12/20 | 6,615 | 6,844,585 | ||||||||||||
US Bancorp | 2.000 | 06/14/13 | 7,955 | 8,154,439 | ||||||||||||
Westpac Banking Corp. (Australia) | 2.100 | 08/02/13 | 6,465 | 6,544,941 | ||||||||||||
27,694,384 | ||||||||||||||||
Diversified Capital Markets–0.1% | ||||||||||||||||
Credit Suisse New York (Switzerland) | 4.375 | 08/05/20 | 6,350 | 6,407,229 | ||||||||||||
Diversified Manufacturing–0.1% | ||||||||||||||||
Brascan Corp. (Canada) | 7.125 | 06/15/12 | 1,330 | 1,428,485 | ||||||||||||
Brookfield Asset Management, Inc. (Canada) | 5.800 | 04/25/17 | 2,470 | 2,534,064 | ||||||||||||
General Electric Co. | 5.250 | 12/06/17 | 4,265 | 4,799,906 | ||||||||||||
8,762,455 | ||||||||||||||||
Electric–0.3% | ||||||||||||||||
Electricite de France SA (France)(d) | 4.600 | 01/27/20 | 2,100 | 2,309,317 | ||||||||||||
Enel Finance International SA, (Luxembourg)(d) | 5.125 | 10/07/19 | 6,605 | 6,841,216 | ||||||||||||
FirstEnergy Solutions Corp. | 6.050 | 08/15/21 | 4,550 | 4,863,675 | ||||||||||||
Iberdrola Finance Ireland Ltd. (Ireland)(d) | 3.800 | 09/11/14 | 2,100 | 2,155,233 | ||||||||||||
Indianapolis Power & Light Co.(d) | 6.300 | 07/01/13 | 1,330 | 1,487,810 | ||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Electric–(continued) | ||||||||||||||||
NiSource Finance Corp. | 6.800 | % | 01/15/19 | $ | 2,040 | $ | 2,420,515 | |||||||||
Progress Energy, Inc. | 7.050 | 03/15/19 | 6,560 | 8,214,715 | ||||||||||||
28,292,481 | ||||||||||||||||
Food & Beverage–0.3% | ||||||||||||||||
Anheuser-Busch InBev Worldwide, Inc.(d) | 7.200 | 01/15/14 | 4,705 | 5,486,720 | ||||||||||||
Bunge Ltd. Finance Corp. | 8.500 | 06/15/19 | 315 | 381,590 | ||||||||||||
ConAgra Foods, Inc. | 7.000 | 10/01/28 | 1,342 | 1,655,795 | ||||||||||||
ConAgra Foods, Inc. | 8.250 | 09/15/30 | 4,085 | 5,548,322 | ||||||||||||
FBG Finance Ltd. (Australia)(d) | 5.125 | 06/15/15 | 6,815 | 7,571,374 | ||||||||||||
Kraft Foods, Inc. | 5.375 | 02/10/20 | 2,150 | 2,401,175 | ||||||||||||
Kraft Foods, Inc. | 6.875 | 02/01/38 | 842 | 1,039,015 | ||||||||||||
Kraft Foods, Inc. | 6.875 | 01/26/39 | 2,030 | 2,519,281 | ||||||||||||
Kraft Foods, Inc. | 7.000 | 08/11/37 | 7,025 | 8,758,043 | ||||||||||||
35,361,315 | ||||||||||||||||
Food Retail–0.2% | ||||||||||||||||
Safeway, Inc. | 3.950 | 08/15/20 | 11,320 | 11,512,038 | ||||||||||||
Wrigley (WM) Jr., Co.(d)(e) | 1.912 | 06/28/11 | 10,705 | 10,737,127 | ||||||||||||
22,249,165 | ||||||||||||||||
Health Care Equipment–0.1% | ||||||||||||||||
Boston Scientific Corp. | 5.450 | 06/15/14 | 5,896 | 6,170,164 | ||||||||||||
CareFusion Corp. | 4.125 | 08/01/12 | 5,885 | 6,169,801 | ||||||||||||
12,339,965 | ||||||||||||||||
Health Care Services–0.1% | ||||||||||||||||
Express Scripts, Inc. | 5.250 | 06/15/12 | 13,930 | 14,885,561 | ||||||||||||
Integrated Energy–0.0% | ||||||||||||||||
Hess Corp. | 6.000 | 01/15/40 | 3,175 | 3,477,679 | ||||||||||||
Integrated Oil & Gas–0.0% | ||||||||||||||||
Shell International Finance BV (Netherlands) | 3.100 | 06/28/15 | 1,920 | 2,019,373 | ||||||||||||
Internet Retail–0.1% | ||||||||||||||||
Expedia, Inc.(d) | 5.950 | 08/15/20 | 6,935 | 7,128,373 | ||||||||||||
Investment Banking & Brokerage–0.3% | ||||||||||||||||
Charles Schwab Corp. | 4.450 | 07/22/20 | 7,675 | 8,073,454 | ||||||||||||
Jefferies Group, Inc. | 6.875 | 04/15/21 | 8,855 | 9,433,848 | ||||||||||||
Morgan Stanley | 4.000 | 07/24/15 | 11,695 | 11,758,631 | ||||||||||||
29,265,933 | ||||||||||||||||
Life & Health Insurance–0.1% | ||||||||||||||||
Aflac, Inc. | 6.450 | 08/15/40 | 4,700 | 4,965,779 | ||||||||||||
MetLife, Inc. | 2.375 | 02/06/14 | 2,235 | 2,241,850 | ||||||||||||
MetLife, Inc. | 4.750 | 02/08/21 | 3,035 | 3,181,168 | ||||||||||||
MetLife, Inc. | 5.875 | 02/06/41 | 2,255 | 2,470,486 | ||||||||||||
12,859,283 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Life Insurance–0.3% | ||||||||||||||||
Aegon NV (Netherlands) | 4.625 | % | 12/01/15 | $ | 3,000 | $ | 3,163,184 | |||||||||
MetLife, Inc., Ser A | 6.817 | 08/15/18 | 3,070 | 3,659,529 | ||||||||||||
Nationwide Financial Services, Inc. | 6.250 | 11/15/11 | 3,155 | 3,289,066 | ||||||||||||
Pacific LifeCorp(d) | 6.000 | 02/10/20 | 3,350 | 3,664,922 | ||||||||||||
Platinum Underwriters Finance, Inc., Ser B | 7.500 | 06/01/17 | 3,100 | 3,437,344 | ||||||||||||
Prudential Financial, Inc. | 4.750 | 09/17/15 | 4,910 | 5,287,635 | ||||||||||||
Prudential Financial, Inc. | 6.625 | 12/01/37 | 3,395 | 3,929,751 | ||||||||||||
Prudential Financial, Inc. | 7.375 | 06/15/19 | 365 | 443,651 | ||||||||||||
Reinsurance Group of America, Inc. | 6.450 | 11/15/19 | 3,350 | 3,686,187 | ||||||||||||
30,561,269 | ||||||||||||||||
Managed Health Care–0.1% | ||||||||||||||||
Aetna, Inc. | 3.950 | 09/01/20 | 8,940 | 8,879,630 | ||||||||||||
WellPoint, Inc. | 4.350 | 08/15/20 | 5,460 | 5,645,493 | ||||||||||||
14,525,123 | ||||||||||||||||
Media-Cable–0.3% | ||||||||||||||||
Comcast Corp. | 5.150 | 03/01/20 | 3,280 | 3,580,039 | ||||||||||||
Comcast Corp. | 5.700 | 05/15/18 | 4,535 | 5,208,184 | ||||||||||||
Comcast Corp. | 6.450 | 03/15/37 | 2,000 | 2,293,801 | ||||||||||||
Cox Communications, Inc. | 7.250 | 11/15/15 | 5,000 | 6,022,876 | ||||||||||||
DirecTV Holdings LLC | 7.625 | 05/15/16 | 6,540 | 7,243,050 | ||||||||||||
Time Warner Cable, Inc. | 6.750 | 06/15/39 | 1,725 | 2,028,197 | ||||||||||||
Time Warner Cable, Inc. | 8.750 | 02/14/19 | 3,855 | 5,062,024 | ||||||||||||
Time Warner, Inc. | 5.875 | 11/15/16 | 2,595 | 3,007,297 | ||||||||||||
34,445,468 | ||||||||||||||||
Media-Noncable–0.1% | ||||||||||||||||
Grupo Televisa SA (Mexico) | 6.000 | 05/15/18 | 1,285 | 1,445,371 | ||||||||||||
WPP Finance UK (United Kingdom) | 8.000 | 09/15/14 | 3,125 | 3,682,710 | ||||||||||||
5,128,081 | ||||||||||||||||
Metals–0.3% | ||||||||||||||||
Anglo American Capital PLC (United Kingdom)(d) | 9.375 | 04/08/19 | 4,085 | 5,567,691 | ||||||||||||
ArcelorMittal (Luxembourg) | 9.850 | 06/01/19 | 6,840 | 8,616,424 | ||||||||||||
Freeport-McMoRan Cooper & Gold, Inc. | 8.375 | 04/01/17 | 5,365 | 5,966,886 | ||||||||||||
Rio Tinto Finance USA Ltd. (Australia) | 9.000 | 05/01/19 | 5,115 | 7,087,578 | ||||||||||||
Southern Copper Corp. | 5.375 | 04/16/20 | 1,145 | 1,200,766 | ||||||||||||
Southern Copper Corp. | 6.750 | 04/16/40 | 1,655 | 1,797,133 | ||||||||||||
Vale Overseas Ltd. (Cayman Islands) | 5.625 | 09/15/19 | 3,570 | 3,840,713 | ||||||||||||
Vale Overseas Ltd. (Cayman Islands) | 6.875 | 11/10/39 | 1,040 | 1,174,017 | ||||||||||||
35,251,208 | ||||||||||||||||
Multi-Line Insurance–0.0% | ||||||||||||||||
CNA Financial Corp. | 5.875 | 08/15/20 | 4,785 | 4,855,141 | ||||||||||||
Noncaptive-Consumer Finance–0.8% | ||||||||||||||||
American Express Credit Corp., Ser C | 7.300 | 08/20/13 | 7,075 | 8,101,073 | ||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Noncaptive-Consumer Finance–(continued) | ||||||||||||||||
General Electric Capital Corp. | 2.625 | % | 12/28/12 | $ | 46,300 | $ | 48,320,505 | |||||||||
General Electric Capital Corp. | 5.625 | 05/01/18 | 9,325 | 10,320,487 | ||||||||||||
General Electric Capital Corp. | 5.875 | 01/14/38 | 2,775 | 2,861,865 | ||||||||||||
Household Finance Corp. | 6.375 | 10/15/11 | 6,316 | 6,672,066 | ||||||||||||
HSBC Finance Corp. | 5.500 | 01/19/16 | 740 | 809,220 | ||||||||||||
HSBC Finance Corp. | 6.750 | 05/15/11 | 4,430 | 4,612,254 | ||||||||||||
81,697,470 | ||||||||||||||||
Office–0.1% | ||||||||||||||||
Digital Realty Trust, LP(d) | 4.500 | 07/15/15 | 5,075 | 5,220,635 | ||||||||||||
Oil & Gas Exploration & Production–0.1% | ||||||||||||||||
Petroleos Mexicanos (Mexico)(d) | 5.500 | 01/21/21 | 5,545 | 5,787,349 | ||||||||||||
Oil Field Services–0.0% | ||||||||||||||||
Petrobras International Finance Co. (Cayman Islands) | 5.750 | 01/20/20 | 3,055 | 3,259,049 | ||||||||||||
Other–0.0% | ||||||||||||||||
NASDAQ OMX Group, Inc. | 5.550 | 01/15/20 | 4,325 | 4,597,123 | ||||||||||||
Other Diversified Financial Services–0.1% | ||||||||||||||||
Erac USA Finance Co.(d) | 2.750 | 07/01/13 | 4,455 | 4,546,104 | ||||||||||||
Erac USA Finance Co.(d) | 5.800 | 10/15/12 | 1,195 | 1,294,599 | ||||||||||||
JPMorgan Chase & Co. | 4.400 | 07/22/20 | 5,520 | 5,611,699 | ||||||||||||
11,452,402 | ||||||||||||||||
Packaged Foods & Meats–0.0% | ||||||||||||||||
Grupo Bimbo SAB de CV (Mexico)(d) | 4.875 | 06/30/20 | 4,480 | 4,667,015 | ||||||||||||
Paper Packaging–0.0% | ||||||||||||||||
Sealed Air Corp. | 7.875 | 06/15/17 | 1,765 | 1,922,187 | ||||||||||||
Pipelines–0.2% | ||||||||||||||||
Enterprise Products Operating LLC | 5.250 | 01/31/20 | 2,325 | 2,521,670 | ||||||||||||
Enterprise Products Operating LLC | 6.500 | 01/31/19 | 4,310 | 5,025,842 | ||||||||||||
Plains All American Pipeline LP | 6.700 | 05/15/36 | 2,815 | 3,091,637 | ||||||||||||
Spectra Energy Capital LLC | 7.500 | 09/15/38 | 2,245 | 2,805,930 | ||||||||||||
Texas Eastern Transmission LP | 7.000 | 07/15/32 | 3,835 | 4,781,933 | ||||||||||||
18,227,012 | ||||||||||||||||
Property & Casualty Insurance–0.0% | ||||||||||||||||
AIG SunAmerica Global Financing VI(d) | 6.300 | 05/10/11 | 1,775 | 1,811,609 | ||||||||||||
Railroads–0.1% | ||||||||||||||||
CSX Corp. | 6.150 | 05/01/37 | 1,710 | 1,969,271 | ||||||||||||
CSX Corp. | 6.750 | 03/15/11 | 5,000 | 5,161,945 | ||||||||||||
7,131,216 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
17 Invesco Van Kampen Equity and Income Fund
Table of Contents
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
REITS–0.1% | ||||||||||||||||
Boston Properties LP | 5.875 | % | 10/15/19 | $ | 3,850 | $ | 4,314,852 | |||||||||
WEA Finance LLC(d) | 6.750 | 09/02/19 | 4,725 | 5,595,480 | ||||||||||||
9,910,332 | ||||||||||||||||
Restaurants–0.1% | ||||||||||||||||
Yum! Brands, Inc. | 5.300 | 09/15/19 | 4,215 | 4,727,828 | ||||||||||||
Yum! Brands, Inc. | 6.250 | 03/15/18 | 1,130 | 1,340,405 | ||||||||||||
6,068,233 | ||||||||||||||||
Retailers–0.2% | ||||||||||||||||
CVS Lease Pass-Through Trust | 6.036 | 12/10/28 | 7,604 | 8,041,819 | ||||||||||||
Home Depot, Inc. | 5.875 | 12/16/36 | 4,560 | 4,862,164 | ||||||||||||
Kohl’s Corp. | 6.875 | 12/15/37 | 4,210 | 5,359,026 | ||||||||||||
Wal-Mart Stores, Inc. | 5.250 | 09/01/35 | 2,060 | 2,241,037 | ||||||||||||
Wal-Mart Stores, Inc. | 6.500 | 08/15/37 | 710 | 909,782 | ||||||||||||
21,413,828 | ||||||||||||||||
Sovereigns–0.0% | ||||||||||||||||
Korea Development Bank(Republic of Korea (South Korea)) | 4.375 | 08/10/15 | 3,360 | 3,547,538 | ||||||||||||
Steel–0.1% | ||||||||||||||||
ArcelorMittal (Luxembourg) | 3.750 | 08/05/15 | 8,330 | 8,297,870 | ||||||||||||
Supermarkets–0.1% | ||||||||||||||||
Delhaize Group (Belgium) | 5.875 | 02/01/14 | 3,780 | 4,265,116 | ||||||||||||
Kroger Co. | 6.900 | 04/15/38 | 1,000 | 1,258,896 | ||||||||||||
5,524,012 | ||||||||||||||||
Technology–0.1% | ||||||||||||||||
Corning, Inc. | 6.625 | 05/15/19 | 715 | 860,996 | ||||||||||||
Corning, Inc. | 7.250 | 08/15/36 | 1,160 | 1,368,091 | ||||||||||||
IBM Corp. | 5.600 | 11/30/39 | 2,310 | 2,730,754 | ||||||||||||
Xerox Corp. | 5.625 | 12/15/19 | 890 | 991,470 | ||||||||||||
Xerox Corp. | 6.350 | 05/15/18 | 2,795 | 3,217,640 | ||||||||||||
9,168,951 | ||||||||||||||||
Tobacco–0.1% | ||||||||||||||||
BAT International Finance PLC (United Kingdom)(d) | 9.500 | 11/15/18 | 3,465 | 4,709,796 | ||||||||||||
Philip Morris International, Inc. | 5.650 | 05/16/18 | 4,510 | 5,260,435 | ||||||||||||
9,970,231 | ||||||||||||||||
Wireline–0.4% | ||||||||||||||||
AT&T Corp. | 8.000 | 11/15/31 | 61 | 84,218 | ||||||||||||
AT&T, Inc. | 6.300 | 01/15/38 | 8,767 | 10,161,792 | ||||||||||||
AT&T, Inc.(d) | 5.350 | 09/01/40 | 2,044 | 2,068,086 | ||||||||||||
Deutsche Telekom International Finance BV (Netherlands) | 8.750 | 06/15/30 | 2,485 | 3,511,489 | ||||||||||||
SBC Communications, Inc. | 6.150 | 09/15/34 | 3,610 | 3,988,069 | ||||||||||||
Telecom Italia Capital SA (Luxembourg) | 6.999 | 06/04/18 | 6,160 | 7,026,494 | ||||||||||||
Telecom Italia Capital SA (Luxembourg) | 7.175 | 06/18/19 | 3,260 | 3,782,145 | ||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
18 Invesco Van Kampen Equity and Income Fund
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Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Wireline–(continued) | ||||||||||||||||
Telefonica Europe (Netherlands) | 8.250 | % | 09/15/30 | $ | 5,750 | $ | 7,596,448 | |||||||||
Verizon Communications, Inc. | 6.350 | 04/01/19 | 3,930 | 4,763,045 | ||||||||||||
Verizon Communications, Inc. | 8.950 | 03/01/39 | 3,435 | 5,192,512 | ||||||||||||
48,174,298 | ||||||||||||||||
Total Corporate Bonds–10.2% | 1,093,747,223 | |||||||||||||||
United States Treasury Obligations–6.9% | ||||||||||||||||
United States Treasury Bonds | 3.500 | 02/15/39 | 30,000 | 29,840,627 | ||||||||||||
United States Treasury Bonds | 4.250 | 05/15/39 | 9,700 | 10,959,485 | ||||||||||||
United States Treasury Bonds | 4.375 | 11/15/39 | 13,000 | 14,986,562 | ||||||||||||
United States Treasury Bonds | 4.625 | 02/15/40 | 17,900 | 21,479,999 | ||||||||||||
United States Treasury Bonds | 6.125 | 11/15/27 | 19,000 | 26,623,749 | ||||||||||||
United States Treasury Bonds | 8.000 | 11/15/21 | 3,557 | 5,394,969 | ||||||||||||
United States Treasury Notes | 1.375 | 09/15/12 | 21,200 | 21,574,313 | ||||||||||||
United States Treasury Notes | 1.500 | 12/31/13 | 25,000 | 25,574,218 | ||||||||||||
United States Treasury Notes | 1.750 | 08/15/12 | 4,080 | 4,181,044 | ||||||||||||
United States Treasury Notes | 1.750 | 03/31/14 | 9,500 | 9,786,484 | ||||||||||||
United States Treasury Notes | 2.000 | 09/30/10 | 10,000 | 10,012,600 | ||||||||||||
United States Treasury Notes | 2.125 | 11/30/14 | 75,435 | 78,593,840 | ||||||||||||
United States Treasury Notes | 2.250 | 01/31/15 | 19,180 | 20,067,075 | ||||||||||||
United States Treasury Notes | 2.375 | 10/31/14 | 225,565 | 237,301,427 | ||||||||||||
United States Treasury Notes | 2.625 | 07/31/14 | 95,125 | 101,040,587 | ||||||||||||
United States Treasury Notes | 3.375 | 11/15/19 | 20,000 | 21,606,250 | ||||||||||||
United States Treasury Notes | 3.625 | 08/15/19 | 56,760 | 62,613,374 | ||||||||||||
United States Treasury Notes | 3.750 | 11/15/18 | 34,000 | 38,080,000 | ||||||||||||
Total United States Treasury Obligations–6.9% | 739,716,603 | |||||||||||||||
Foreign Government Obligations–0.3% | ||||||||||||||||
Brazilian Government International Bond (Brazil) | 6.000 | 01/17/17 | 16,195 | 18,705,225 | ||||||||||||
Italian Republic (Italy) | 6.875 | 09/27/23 | 6,235 | 7,762,844 | ||||||||||||
Republic of Peru (Peru) | 7.125 | 03/30/19 | 1,615 | 2,004,457 | ||||||||||||
Total Foreign Government Obligations–0.3% | 28,472,526 | |||||||||||||||
Municipal Bonds–0.3% | ||||||||||||||||
California–0.0% | ||||||||||||||||
California St Taxable Var Purp 3 | 5.950 | 04/01/16 | 2,390 | 2,639,922 | ||||||||||||
Georgia–0.1% | ||||||||||||||||
Municipal Elec Auth GA Build America Bonds | 6.655 | 04/01/57 | 4,980 | 5,270,583 | ||||||||||||
Municipal Elec Auth GA Build America Bonds Taxable Plt | 6.637 | 04/01/57 | 2,600 | 2,787,538 | ||||||||||||
8,058,121 | ||||||||||||||||
Illinois–0.1% | ||||||||||||||||
Chicago, IL O’Hare Intl Arpt Build America Bonds | 6.395 | 01/01/40 | 1,480 | 1,643,792 | ||||||||||||
Chicago, IL Transit Auth Sales Tax Receipts Rev Build America Bonds, Ser B | 6.200 | 12/01/40 | 3,945 | 4,000,901 | ||||||||||||
Illinois St Toll Hwy Auth Toll Hwy Rev Build America Bonds Direct Pmt Taxable Sr Priority | 6.184 | 01/01/34 | 2,970 | 3,194,086 | ||||||||||||
8,838,779 | ||||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
19 Invesco Van Kampen Equity and Income Fund
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Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
New York–0.1% | ||||||||||||||||
New York Build America Bonds | 5.968 | % | 03/01/36 | $ | 3,555 | $ | 3,935,563 | |||||||||
Texas–0.0% | ||||||||||||||||
Texas St Trans Commn Taxable First Tier, Ser B | 5.028 | 04/01/26 | 3,360 | 3,699,998 | ||||||||||||
Total Municipal Bonds–0.3% | 27,172,383 | |||||||||||||||
Asset Backed Securities–0.1% | ||||||||||||||||
ARI Fleet Lease Trust(d)(e) | 1.726 | 08/15/18 | 3,216 | 3,216,741 | ||||||||||||
GE Dealer Floorplan Master Note Trust(d)(e) | 1.816 | 10/20/14 | 5,075 | 5,143,498 | ||||||||||||
Total Asset Backed Securities–0.1% | 8,360,239 | |||||||||||||||
Total Long-Term Investments–97.5% (Cost $10,640,439,187) | 10,429,702,824 | |||||||||||||||
Shares | Value | |||||||
Money Market Funds–2.3% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 124,404,885 | $ | 124,404,885 | |||||
Premier Portfolio–Institutional Class(b) | 124,404,885 | 124,404,885 | ||||||
Total Money Market Funds–2.3% (Cost $248,809,770) | 248,809,770 | |||||||
Short-Term Investments–0.0% | ||||||||
United States Government Agency Obligations–0.0% | ||||||||
United States Treasury Bill ($3,400,000 par, yielding 0.202%, 10/28/10 maturity)(f) (Cost $3,398,928) | 3,398,928 | |||||||
TOTAL INVESTMENTS–99.8% (Cost $10,892,647,885) | 10,681,911,522 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–0.2% | 18,317,424 | |||||||
NET ASSETS–-100.0% | $ | 10,700,228,946 | ||||||
Investment Abbreviation:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets. | ||
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(c) | Variable Rate Coupon | |
(d) | 144A-Private Placement security which is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. This security may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. | |
(e) | Floating Rate Coupon | |
(f) | All or a portion of this security has been physically segregated in connection with open futures contracts. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
20 Invesco Van Kampen Equity and Income Fund
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Futures Contracts Outstanding as of August 31, 2010 | ||||||||
Unrealized | ||||||||
Number of | Appreciation/ | |||||||
Contracts | Depreciation | |||||||
Long Contracts: | ||||||||
U.S. Treasury Note 2-Year Futures, December 2010 | ||||||||
(Current Notional Value of $219,141 per contract) | 1,741 | $ | 186,785 | |||||
Short Contracts: | ||||||||
U.S. Treasury Bond 30-Year Futures, December 2010 | ||||||||
(Current Notional Value of $135,031 per contract) | 262 | (106,988 | ) | |||||
U.S. Treasury Notes 5-Year Futures, December 2010 | ||||||||
(Current Notional Value of $120,320 per contract) | 1,669 | (1,294,364 | ) | |||||
U.S. Treasury Note 10-Year Futures, September 2010 | ||||||||
(Current Notional Value of $126,500 per contract) | 1,143 | (6,892,609 | ) | |||||
Total Short Contracts | 3,074 | (8,293,961 | ) | |||||
Total Futures Contracts | 4,815 | $ | (8,107,176 | ) | ||||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 3 in the Notes to Financial Statements for further information regarding fair value measurements.)
The following is a summary of the inputs used as of August 31, 2010 in valuing the Fund’s investments carried at value.
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Investments in an Asset Position | ||||||||||||||||
Equity Securities | ||||||||||||||||
Common Stocks (excluding ADR securities) | $ | 5,978,092,108 | $ | — | $ | — | $ | 5,978,092,108 | ||||||||
ADR Securities | 464,784,655 | 141,435,526 | — | 606,220,181 | ||||||||||||
Convertible Preferred Stocks | 143,121,805 | 58,980,577 | — | 202,102,382 | ||||||||||||
Money Market Funds | 248,809,770 | — | — | 248,809,770 | ||||||||||||
Convertible Corporate Obligations | — | 1,745,819,179 | — | 1,745,819,179 | ||||||||||||
Corporate Bonds | — | 1,093,747,223 | — | 1,093,747,223 | ||||||||||||
United States Treasury Obligations | — | 739,716,603 | — | 739,716,603 | ||||||||||||
Foreign Government Obligations | — | 28,472,526 | — | 28,472,526 | ||||||||||||
Municipal Bonds | — | 27,172,383 | — | 27,172,383 | ||||||||||||
Asset Backed Securities | — | 8,360,239 | — | 8,360,239 | ||||||||||||
Short-Term Investments | — | 3,398,928 | — | 3,398,928 | ||||||||||||
Futures | 186,785 | — | — | 186,785 | ||||||||||||
Total Investments in an Asset Position | $ | 6,834,995,123 | $ | 3,847,103,184 | $ | — | $ | 10,682,098,307 | ||||||||
Investments in a Liability Position | ||||||||||||||||
Futures | $ | (8,293,961 | ) | $ | — | $ | — | $ | (8,293,961 | ) | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
21 Invesco Van Kampen Equity and Income Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $10,643,838,115) | $ | 10,433,101,752 | ||
Investments in affiliated money market funds, at value and cost | 248,809,770 | |||
Cash | 5 | |||
Receivables: | ||||
Interest | 29,212,874 | |||
Dividends | 19,718,339 | |||
Investments sold | 15,701,721 | |||
Fund shares sold | 10,796,805 | |||
Other | 69,427 | |||
Total assets | 10,757,410,693 | |||
Liabilities: | ||||
Payables: | ||||
Fund shares repurchased | 24,418,674 | |||
Investments purchased | 21,396,681 | |||
Distributor and affiliates | 6,325,745 | |||
Variation margin on futures | 1,139,132 | |||
Accrued expenses | 3,901,515 | |||
Total liabilities | 57,181,747 | |||
Net assets | $ | 10,700,228,946 | ||
Net assets consist of: | ||||
Capital (Par value of $0.01 per share with an unlimited number of shares authorized) | $ | 11,667,764,220 | ||
Accumulated undistributed net investment income | 38,387,747 | |||
Net unrealized appreciation (depreciation) | (218,843,539 | ) | ||
Accumulated net realized gain (loss) | (787,079,482 | ) | ||
Net assets | $ | 10,700,228,946 | ||
Maximum offering price per share: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share (Based on net assets of $7,560,462,147 and 1,003,430,664 shares of beneficial interest issued and outstanding) | $ | 7.53 | ||
Maximum sales charge (5.50% of offering price) | 0.44 | |||
Maximum offering price to public | $ | 7.97 | ||
Class B Shares: | ||||
Net asset value and offering price per share (Based on net assets of $1,278,734,229 and 173,061,758 shares of beneficial interest issued and outstanding) | $ | 7.39 | ||
Class C Shares: | ||||
Net asset value and offering price per share (Based on net assets of $1,211,088,790 and 163,207,905 shares of beneficial interest issued and outstanding) | $ | 7.42 | ||
Class R Shares: | ||||
Net asset value and offering price per share (Based on net assets of $172,143,381 and 22,753,587 shares of beneficial interest issued and outstanding) | $ | 7.57 | ||
Class Y Shares: | ||||
Net asset value and offering price per share (Based on net assets of $414,202,899 and 54,942,806 shares of beneficial interest issued and outstanding) | $ | 7.54 | ||
Institutional Share Class: | ||||
Net asset value and offering price per share (Based on net assets of $63,597,500 and 8,436,538 shares of beneficial interest issued and outstanding) | $ | 7.54 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
22 Invesco Van Kampen Equity and Income Fund
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Statements of Operations
For the period January 1, 2010 through August 31, 2010 and the year ended December 31, 2009
For the | For the | |||||||
eight months ended | year ended | |||||||
August 31, | December 31, | |||||||
2010 | 2009 | |||||||
Investment income: | ||||||||
Dividends (net of foreign taxes of $989,792 and $3,859,222) | $ | 118,287,775 | $ | 192,084,331 | ||||
Interest | 90,705,150 | 143,064,008 | ||||||
Total income | 208,992,925 | 335,148,339 | ||||||
Expenses: | ||||||||
Investment advisory fee | 27,578,844 | 39,904,669 | ||||||
Distribution fees | ||||||||
Class A | 13,669,074 | 19,676,007 | ||||||
Class B | 3,787,038 | 3,892,009 | ||||||
Class C | 8,807,407 | 12,776,200 | ||||||
Class R | 593,631 | 745,061 | ||||||
Transfer agent fees — A, B, C, R and Y | 10,233,551 | 19,240,793 | ||||||
Transfer agent fees Institutional | 5,491 | -0- | ||||||
Reports to shareholders | 1,582,123 | 1,976,225 | ||||||
Administrative services fees | 1,026,491 | 1,487,794 | ||||||
Trustees’ and officers’ fees and benefits | 245,424 | 262,712 | ||||||
Custody | 231,319 | 484,682 | ||||||
Professional fees | 209,428 | 528,502 | ||||||
Registration fees | 109,132 | 149,804 | ||||||
Other | 197,788 | 359,401 | ||||||
Total expenses | 68,276,741 | 101,483,859 | ||||||
Expense reduction | 71,576 | -0- | ||||||
Net expenses | 68,205,165 | 101,483,859 | ||||||
Net investment income | 140,787,760 | 233,664,480 | ||||||
Realized and unrealized gain (loss): | ||||||||
Realized gain (loss) on sales of unaffiliated investments | 426,910,722 | (19,301,613 | ) | |||||
Realized gain (loss) on sales of affiliated investments | -0- | (7,274,392 | ) | |||||
Swap contracts | 80,232 | 150,369,078 | ||||||
Futures contracts | (15,351,081 | ) | 3,235,175 | |||||
Foreign currency transactions | -0- | (78,923 | ) | |||||
Written options | -0- | (2,340,738 | ) | |||||
Net realized gain | 411,639,873 | 124,608,587 | ||||||
Unrealized appreciation (depreciation): | ||||||||
Beginning of the period | 585,509,667 | (1,393,959,583 | ) | |||||
End of the period: | ||||||||
Investments | (210,736,363 | ) | 583,835,030 | |||||
Futures contracts | (8,107,176 | ) | 1,669,337 | |||||
Swap contracts | -0- | 5,300 | ||||||
(218,843,539 | ) | 585,509,667 | ||||||
Net unrealized appreciation (depreciation) during the period | (804,353,206 | ) | 1,979,469,250 | |||||
Net realized and unrealized gain (loss) | (392,713,333 | ) | 2,104,077,837 | |||||
Net increase (decrease) in net assets from operations | $ | (251,925,573 | ) | $ | 2,337,742,317 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
23 Invesco Van Kampen Equity and Income Fund
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Statements of Changes in Net Assets
For the period January 1, 2010 through August 31, 2010 and the years ended December 31, 2009 and 2008
For the | For the | For the | ||||||||||
eight months ended | year ended | year ended | ||||||||||
August 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
From investment activities: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 140,787,760 | $ | 233,664,480 | $ | 397,313,444 | ||||||
Net realized gain (loss) | 411,639,873 | 124,608,587 | (1,232,625,977 | ) | ||||||||
Net unrealized appreciation (depreciation) during the period | (804,353,206 | ) | 1,979,469,250 | (3,550,450,672 | ) | |||||||
Change in net assets from operations | (251,925,573 | ) | 2,337,742,317 | (4,385,763,205 | ) | |||||||
Distributions from net investment income: | ||||||||||||
Class A | (78,392,006 | ) | (169,870,784 | ) | (311,097,826 | ) | ||||||
Class B | (13,309,304 | ) | (34,279,040 | ) | (67,418,301 | ) | ||||||
Class C | (7,935,103 | ) | (18,888,668 | ) | (39,897,038 | ) | ||||||
Class R | (1,478,570 | ) | (2,837,918 | ) | (4,776,162 | ) | ||||||
Class Y | (5,662,982 | ) | (10,397,866 | ) | (12,268,513 | ) | ||||||
Institutional Class | (53 | ) | -0- | -0- | ||||||||
(106,778,018 | ) | (236,274,276 | ) | (435,457,840 | ) | |||||||
Distributions from net realized gain: | ||||||||||||
Class A | -0- | -0- | (9,737,846 | ) | ||||||||
Class B | -0- | -0- | (2,204,383 | ) | ||||||||
Class C | -0- | -0- | (1,736,510 | ) | ||||||||
Class R | -0- | -0- | (154,420 | ) | ||||||||
Class Y | -0- | -0- | (327,844 | ) | ||||||||
Institutional Class | -0- | -0- | -0- | |||||||||
-0- | -0- | (14,161,003 | ) | |||||||||
Total distributions | (106,778,018 | ) | (236,274,276 | ) | (449,618,843 | ) | ||||||
Net change in net assets from investment activities | (358,703,591 | ) | 2,101,468,041 | (4,835,382,048 | ) | |||||||
From capital transactions: | ||||||||||||
Proceeds from shares sold | 1,129,565,763 | 1,465,117,527 | 2,256,739,415 | |||||||||
Net asset value of shares issued through dividend reinvestment | 98,637,404 | 217,024,419 | 410,686,331 | |||||||||
Cost of shares repurchased | (2,234,360,492 | ) | (3,473,291,737 | ) | (5,308,254,206 | ) | ||||||
Net change in net assets from capital transactions | (1,006,157,325 | ) | (1,791,149,791 | ) | (2,640,828,460 | ) | ||||||
Total increase (decrease) in net assets | (1,364,860,916 | ) | 310,318,250 | (7,476,210,508 | ) | |||||||
Net assets: | ||||||||||||
Beginning of the period | 12,065,089,862 | 11,754,771,612 | 19,230,982,120 | |||||||||
End of the period (including accumulated undistributed net investment income (loss) of $38,387,747, $(347,446) and $(26,087,660), respectively) | $ | 10,700,228,946 | $ | 12,065,089,862 | $ | 11,754,771,612 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
24 Invesco Van Kampen Equity and Income Fund
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Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class A Shares | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 7.79 | $ | 6.45 | $ | 8.84 | $ | 9.12 | $ | 8.68 | $ | 8.62 | ||||||||||||
Net investment income | 0.10 | (a) | 0.15 | (a) | 0.20 | (a) | 0.22 | (a) | 0.20 | (a) | 0.17 | |||||||||||||
Net realized and unrealized gain (loss) | (0.28 | ) | 1.34 | (2.36 | ) | 0.08 | 0.86 | 0.49 | ||||||||||||||||
Total from investment operations | (0.18 | ) | 1.49 | (2.16 | ) | 0.30 | 1.06 | 0.66 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.08 | 0.15 | 0.22 | 0.22 | 0.20 | 0.18 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.01 | 0.36 | 0.42 | 0.42 | ||||||||||||||||||
Total distributions | 0.08 | 0.15 | 0.23 | 0.58 | 0.62 | 0.60 | ||||||||||||||||||
Net asset value, end of the period | $ | 7.53 | $ | 7.79 | $ | 6.45 | $ | 8.84 | $ | 9.12 | $ | 8.68 | ||||||||||||
Total return | (2.40 | )%(b) | 23.51 | %(c) | (24.78 | )%(c) | 3.26 | %(c) | 12.53 | %(c) | 7.81 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $7,560.5 | $8,395.7 | $8,214.1 | $13,332.5 | $12,604.9 | $10,376.7 | ||||||||||||||||||
Ratio of expenses to average net assets | 0.78 | %(d) | 0.82 | % | 0.79 | % | 0.76 | % | 0.78 | % | 0.78 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.89 | %(d) | 2.15 | % | 2.59 | % | 2.32 | % | 2.29 | % | 1.98 | % | ||||||||||||
Portfolio turnover(e) | 24 | % | 78 | % | 56 | % | 35 | % | 39 | % | 38 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $8,219,270. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
25 Invesco Van Kampen Equity and Income Fund
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Financial Highlights—(continued)
Class B Shares | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 7.64 | $ | 6.33 | $ | 8.68 | $ | 8.97 | $ | 8.55 | $ | 8.49 | ||||||||||||
Net investment income | 0.09 | (a) | 0.14 | (a) | 0.20 | (a) | 0.17 | (a) | 0.13 | (a) | 0.11 | |||||||||||||
Net realized and unrealized gain (loss) | (0.27 | ) | 1.32 | (2.32 | ) | 0.08 | 0.84 | 0.49 | ||||||||||||||||
Total from investment operations | (0.18 | ) | 1.46 | (2.12 | ) | 0.25 | 0.97 | 0.60 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.07 | 0.15 | 0.22 | 0.18 | 0.13 | 0.12 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.01 | 0.36 | 0.42 | 0.42 | ||||||||||||||||||
Total distributions | 0.07 | 0.15 | 0.23 | 0.54 | 0.55 | 0.54 | ||||||||||||||||||
Net asset value, end of the period | $ | 7.39 | $ | 7.64 | $ | 6.33 | $ | 8.68 | $ | 8.97 | $ | 8.55 | ||||||||||||
Total return | (2.40 | )%(b)(c) | 23.48 | %(d)(f) | (24.78 | )%(d)(f) | 2.71 | %(d)(f) | 11.66 | %(d) | 7.15 | %(d) | ||||||||||||
Net assets at end of the period (in millions) | $1,278.7 | $1,594.1 | $1,693.8 | $2,978.3 | $3,270.4 | $3,222.1 | ||||||||||||||||||
Ratio of expenses to average net assets | 0.91 | %(c)(e) | 0.82 | %(f) | 0.79 | %(f) | 1.25 | %(f) | 1.53 | % | 1.53 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.76 | %(c)(e) | 2.16 | %(f) | 2.59 | %(f) | 1.83 | %(f) | 1.54 | % | 1.22 | % | ||||||||||||
Portfolio turnover(g) | 24 | % | 78 | % | 56 | % | 35 | % | 39 | % | 38 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of 0.38%. | |
(d) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,479,602. | |
(f) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Class C Shares | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 7.68 | $ | 6.36 | $ | 8.72 | $ | 9.01 | $ | 8.58 | $ | 8.52 | ||||||||||||
Net investment income | 0.06 | (a) | 0.09 | (a) | 0.14 | (a) | 0.14 | (a) | 0.14 | (a) | 0.11 | |||||||||||||
Net realized and unrealized gain (loss) | (0.27 | ) | 1.33 | (2.32 | ) | 0.08 | 0.84 | 0.49 | ||||||||||||||||
Total from investment operations | (0.21 | ) | 1.42 | (2.18 | ) | 0.22 | 0.98 | 0.60 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.05 | 0.10 | 0.17 | 0.15 | 0.13 | 0.12 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.01 | 0.36 | 0.42 | 0.42 | ||||||||||||||||||
Total distributions | 0.05 | 0.10 | 0.18 | 0.51 | 0.55 | 0.54 | ||||||||||||||||||
Net asset value, end of the period | $ | 7.42 | $ | 7.68 | $ | 6.36 | $ | 8.72 | $ | 9.01 | $ | 8.58 | ||||||||||||
Total return | (2.81 | )%(b)(c) | 22.63 | %(d)(f) | (25.33 | )%(d)(f) | 2.41 | %(d) | 11.73 | %(d) | 7.12 | %(d) | ||||||||||||
Net assets at end of the period (in millions) | $1,211.1 | $1,375.5 | $1,340.4 | $2,333.4 | $2,267.4 | $1,968.8 | ||||||||||||||||||
Ratio of expenses to average net assets | 1.52 | %(c)(e) | 1.56 | %(f) | 1.50 | %(f) | 1.51 | % | 1.53 | % | 1.53 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.15 | %(c)(e) | 1.40 | %(f) | 1.88 | %(f) | 1.57 | % | 1.54 | % | 1.22 | % | ||||||||||||
Portfolio turnover(g) | 24 | % | 78 | % | 56 | % | 35 | % | 39 | % | 38 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of 0.99%. | |
(d) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,334,831. | |
(f) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class R Shares | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 7.83 | $ | 6.48 | $ | 8.87 | $ | 9.16 | $ | 8.72 | $ | 8.65 | ||||||||||||
Net investment income | 0.09 | (a) | 0.13 | (a) | 0.18 | (a) | 0.19 | (a) | 0.18 | (a) | 0.15 | |||||||||||||
Net realized and unrealized gain (loss) | (0.28 | ) | 1.35 | (2.36 | ) | 0.08 | 0.86 | 0.50 | ||||||||||||||||
Total from investment operations | (0.19 | ) | 1.48 | (2.18 | ) | 0.27 | 1.04 | 0.65 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.07 | 0.13 | 0.20 | 0.20 | 0.18 | 0.16 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.01 | 0.36 | 0.42 | 0.42 | ||||||||||||||||||
Total distributions | 0.07 | 0.13 | 0.21 | 0.56 | 0.60 | 0.58 | ||||||||||||||||||
Net asset value, end of the period | $ | 7.57 | $ | 7.83 | $ | 6.48 | $ | 8.87 | $ | 9.16 | $ | 8.72 | ||||||||||||
Total return | (2.51 | )%(b) | 23.25 | %(c) | (24.89 | )%(c) | 2.87 | %(c) | 12.20 | %(c) | 7.65 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $172.1 | $169.7 | $148.4 | $192.9 | $151.8 | $101.8 | ||||||||||||||||||
Ratio of expenses to average net assets | 1.03 | %(d) | 1.07 | % | 1.04 | % | 1.01 | % | 1.03 | % | 1.03 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.64 | %(d) | 1.88 | % | 2.35 | % | 2.07 | % | 2.04 | % | 1.73 | % | ||||||||||||
Portfolio turnover(e) | 24 | % | 78 | % | 56 | % | 35 | % | 39 | % | 38 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period. These returns include combined Rule 12b-1 fees and service fees of up to 0.50% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $178,333. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Class Y Sharesˆ | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 7.79 | $ | 6.45 | $ | 8.84 | $ | 9.12 | $ | 8.69 | $ | 8.61 | ||||||||||||
Net investment income | 0.11 | (a) | 0.16 | (a) | 0.22 | (a) | 0.24 | (a) | 0.23 | (a) | 0.17 | |||||||||||||
Net realized and unrealized gain (loss) | (0.28 | ) | 1.35 | (2.36 | ) | 0.08 | 0.84 | 0.53 | ||||||||||||||||
Total from investment operations | (0.17 | ) | 1.51 | (2.14 | ) | 0.32 | 1.07 | 0.70 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.08 | 0.17 | 0.24 | 0.24 | 0.22 | 0.20 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.01 | 0.36 | 0.42 | 0.42 | ||||||||||||||||||
Total distributions | 0.08 | 0.17 | 0.25 | 0.60 | 0.64 | 0.62 | ||||||||||||||||||
Net asset value, end of the period | $ | 7.54 | $ | 7.79 | $ | 6.45 | $ | 8.84 | $ | 9.12 | $ | 8.69 | ||||||||||||
Total return | (2.15 | )%(b) | 23.82 | %(c) | (24.60 | )%(c) | 3.52 | %(c) | 12.68 | %(c) | 8.33 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $414.2 | $530.0 | $358.1 | $392.8 | $154.7 | $58.7 | ||||||||||||||||||
Ratio of expenses to average net assets | 0.53 | %(d) | 0.57 | % | 0.54 | % | 0.51 | % | 0.53 | % | 0.55 | % | ||||||||||||
Ratio of net investment income to average net assets | 2.15 | %(d) | 2.34 | % | 2.85 | % | 2.57 | % | 2.53 | % | 2.17 | % | ||||||||||||
Portfolio turnover(e) | 24 | % | 78 | % | 56 | % | 35 | % | 39 | % | 38 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period. This return does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $512,136. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
ˆ | On June 1, 2010, the Fund’s former Class I Shares were reorganized into Class Y Shares. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
27 Invesco Van Kampen Equity and Income Fund
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Financial Highlights—(continued)
Institutional Class | ||||
June 1, 2010 | ||||
(Commencement of | ||||
operations) to | ||||
August 31, | ||||
2010 | ||||
Net asset value, beginning of the period | $ | 7.59 | ||
Net investment income(a) | 0.03 | |||
Net realized and unrealized gain (loss) | (0.04 | ) | ||
Total from investment operations | (0.01 | ) | ||
Distributions from net investment income | 0.04 | |||
Net asset value, end of the period | $ | 7.54 | ||
Total return(b) | (0.13 | )% | ||
Net assets at end of the period (in millions) | $ | 63.6 | ||
Ratio of expenses to average net assets(c) | 0.45 | % | ||
Ratio of net investment income to average net assets(c) | 1.79 | % | ||
Portfolio turnover(d) | 24 | % | ||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $44,050. | |
(d) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Equity and Income Fund, is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from December 31 to August 31.
Prior to June 1, 2010, the Fund operated as Van Kampen Equity and Income Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010 (The “Reorganization Date”) through the transfer of all its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C, Class R and Class I shares received Class A, Class B, Class C, Class R and Class Y shares, respectively, of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is to seek the highest possible income consistent with safety of principal. Long-term growth of capital is an important secondary investment objective.
The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the |
28 Invesco Van Kampen Equity And Income Fund
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security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. |
29 Invesco Van Kampen Equity And Income Fund
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E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Purchased on a When-Issued and Delayed Delivery Basis — The Fund may purchase and sell interests in Corporate Loans and Corporate Debt Securities and other portfolio securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Fund actually takes delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities prior to the settlement date. | |
J. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. | |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the |
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contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
K. | Dollar Roll and Forward Commitment Transactions — The Fund may engage in dollar roll and forward commitment transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. These transactions are often conducted on a to be announced (“TBA”) basis. In a TBA mortgage-backed transaction, the seller does not specify the particular securities to be delivered. Rather, a Fund agrees to accept any security that meets specified terms, such as an agreed upon issuer, coupon rate and terms of the underlying mortgages. TBA mortgage-backed transactions generally settle once a month on a specific date. | |
In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to purchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price and future date. The mortgage-backed securities to be purchased will bear the same coupon as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. Based on the typical structure of dollar roll transactions by the Fund, the dollar roll transactions are accounted for as financing transactions in which the Fund receives compensation as either a “fee” or a “drop”. “Fee” income which is agreed upon amongst the parties at the commencement of the dollar roll and the “drop” which is the difference between the selling price and the repurchase price of the mortgage-backed securities are amortized to income. During the period between the sale and purchase settlement dates, the Fund will not be entitled to receive interest and principal payments on securities purchased and not yet settled. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. Dollar roll transactions are considered borrowings under the 1940 Act. | ||
Forward commitment transactions involve commitments by the Fund to acquire or sell TBA mortgage-backed securities from/to a financial institution, such as a bank or broker-dealer at a specified future date and amount. The TBA mortgage-backed security is marked to market until settlement and the unrealized appreciation or depreciation is recorded in the statement of operations. | ||
At the time the Fund enters into the dollar roll or forward commitment transaction, mortgage-backed securities or other liquid assets held by the Fund having a dollar value equal to the purchase price or in an amount sufficient to honor the forward commitment will be segregated. | ||
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to purchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to purchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed the return on the securities sold. | ||
Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund’s overall interest rate exposure. | ||
L. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
M. | Call Options Written — The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently valued to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A 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. |
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N. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
O. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $150 million | 0 | .50% | ||
Next $100 million | 0 | .45% | ||
Next $100 million | 0 | .40% | ||
Over $350 million | 0 | .35% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $17,678,037 and $39,904,669 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets for the period January 1, 2010 to May 31, 2010 and for the year ended December 31, 2009, respectively.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares to 0.82%, 1.57%, 1.57%, 1.07%, 0.57% and 0.57% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the period ended August 31, 2010, the Adviser waived fees of $71,576.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $299,086 and $770,617 to VKII for the period January 1, 2010 to May 31, 2010 and the year ended December 31, 2009, respectively. For the period ended August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended August 31, 2010, IIS was paid $4,245,770 for providing such services. Prior to the Reorganization, the Acquired Fund paid $2,482,997 and $5,797,296 to Van Kampen Investor Services Inc., which served as the Acquired
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Fund’s transfer agent, for the period January 1, 2010 to May 31, 2010 and for the year ended December 31, 2009. For the period ended August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares, Class C shares and Class R shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets, up to 1.00% each of Class B and Class C average daily net assets and up to 0.50% of Class R average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B, Class C and Class R shares. Pursuant to such agreements, the Acquired Fund paid $17,152,807 and $37,089,277 to VKFI for the period January 1, 2010 to May 31, 2010 and the year ended December 31, 2009, respectively.
For the period ended August 31, 2010 and the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $281,605 in front-end sales commissions from the sale of Class A shares and $2,505, $451,290 and $12,009 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period January 1, 2010 to May 31, 2010, VKFI retained $850,761 in front-end sales commissions from the sale of Class A shares and $839,804, for CDSC imposed on redemptions by shareholders. For the year ended December 31, 2009, VKFI retained $1,756,500 in front-end sales commissions from the sale of Class A shares and $2,436,500, for CDSC imposed on redemptions by shareholders.
The Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of Van Kampen, totaling $0 and $338,204 for the period January 1, 2010 to May 31, 2010 and the year ended December 31, 2009, respectively.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
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NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 186,785 | $ | (8,293,961 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended August 31, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Futures* | Swap Agreements* | |||||||
Realized Gain (Loss) | ||||||||
Credit risk | $ | -0- | $ | 80,232 | ||||
Interest rate risk | (15,351,081 | ) | -0- | |||||
Total | $ | (15,351,081 | ) | $ | 80,232 | |||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Credit risk | $ | -0- | $ | (5,300 | ) | |||
Interest rate risk | (9,776,513 | ) | -0- | |||||
Total | $ | (9,776,513 | ) | $ | (5,300 | ) | ||
* | The average value of futures and swap agreements outstanding during the period was $632,803,551, and $963,000, respectively. |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended August 31, 2010, the Fund paid legal fees of $0 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. For the period January 1, 2010 to May 31, 2010, the Acquired Fund recognized expenses of $161,427 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund. For the year ended December 31, 2009, the Acquired Fund recognized expenses of $485,300 representing legal services provided by Skadden.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
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NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Eight Months Ended August 31, 2010 and the Years Ended December 31, 2009 and 2008:
August 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||
Ordinary income | $ | 106,778,018 | $ | 236,274,276 | $ | 435,457,840 | ||||||
Long-term capital gain | -0- | -0- | 14,161,003 | |||||||||
Total distributions | $ | 106,778,018 | $ | 236,274,276 | $ | 449,618,843 | ||||||
Tax Components of Net Assets at Period-End:
August 31, 2010 | ||||
Undistributed ordinary income | $ | 48,938,655 | ||
Net unrealized appreciation (depreciation) — investments | (225,802,461 | ) | ||
Capital loss carryforward | (790,671,468 | ) | ||
Shares of beneficial interest | 11,667,764,220 | |||
Total net assets | $ | 10,700,228,946 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $396,662,056 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
08/31/2016 | $ | 352,132,679 | ||
08/31/2017 | 438,538,789 | |||
Total capital loss carryforward | $ | 790,671,468 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund from January 1, 2010 to August 31, 2010 was $2,408,045,187 and $3,041,524,617, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $317,187,820 and $620,377,013. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 530,952,773 | ||
Aggregate unrealized (depreciation) of investment securities | (756,755,234 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (225,802,461 | ) | |
Cost of investments for tax purposes is $10,907,713,983. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, accumulated undistributed net investment income (loss) was increased by $4,725,451, accumulated net realized gain (loss) was decreased by $2,983,612 and shares of beneficial interest decreased by $1,741,839. This reclassification had no effect on the net assets of the Fund.
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NOTE 10—Share Information
For the | For the | For the | ||||||||||||||||||||||
eight months ended | year ended | year ended | ||||||||||||||||||||||
August 31, 2010(a) | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
Sales: | ||||||||||||||||||||||||
Class A | 98,417,827(b | ) | $ | 775,393,804(b | ) | 152,455,661 | $ | 1,019,540,444 | 209,752,460 | $ | 1,632,378,217 | |||||||||||||
Class B | 9,862,974 | 76,560,048 | 17,040,669 | 112,317,617 | 20,444,876 | 156,684,986 | ||||||||||||||||||
Class C | 8,006,841 | 62,607,051 | 14,723,990 | 97,030,036 | 22,766,621 | 174,710,806 | ||||||||||||||||||
Class R | 5,995,073 | 47,243,796 | 7,528,313 | 50,828,631 | 11,383,764 | 90,560,554 | ||||||||||||||||||
Class Y | 13,491,946 | 104,059,515 | 27,440,102 | 185,400,799 | 26,999,012 | 202,404,852 | ||||||||||||||||||
Institutional Class | 8,655,060 | 63,701,549 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Total Sales | 144,429,721 | $ | 1,129,565,763 | 219,188,735 | $ | 1,465,117,527 | 291,346,733 | $ | 2,256,739,415 | |||||||||||||||
Dividend reinvestment: | ||||||||||||||||||||||||
Class A | 9,608,352 | $ | 74,626,926 | 24,446,316 | $ | 161,015,444 | 40,048,573 | $ | 302,283,375 | |||||||||||||||
Class B | 1,636,496 | 12,524,790 | 4,987,667 | 32,122,352 | 8,744,988 | 64,763,050 | ||||||||||||||||||
Class C | 870,817 | 6,684,401 | 2,469,812 | 15,782,993 | 4,593,803 | 34,171,381 | ||||||||||||||||||
Class R | 160,236 | 1,249,945 | 346,588 | 2,295,727 | 519,488 | 3,913,802 | ||||||||||||||||||
Class Y | 459,192 | 3,551,289 | 864,221 | 5,807,903 | 743,947 | 5,554,723 | ||||||||||||||||||
Institutional Class | 7 | 53 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Total Dividend Reinvestment | 12,735,100 | $ | 98,637,404 | 33,114,604 | $ | 217,024,419 | 54,650,799 | $ | 410,686,331 | |||||||||||||||
Repurchases: | ||||||||||||||||||||||||
Class A | (182,005,149 | ) | $ | (1,429,879,461 | ) | (373,158,614 | ) | $ | (2,461,244,129 | ) | (485,002,634 | ) | $ | (3,687,403,278 | ) | |||||||||
Class B | (46,975,980 | )(b) | (363,246,164 | )(b) | (81,100,246 | ) | (528,724,358 | ) | (104,834,921 | ) | (783,122,460 | ) | ||||||||||||
Class C | (24,667,895 | ) | (191,292,984 | ) | (48,861,338 | ) | (317,406,185 | ) | (84,462,156 | ) | (633,567,762 | ) | ||||||||||||
Class R | (5,083,175 | ) | (40,217,738 | ) | (9,103,508 | ) | (60,374,499 | ) | (10,732,968 | ) | (82,103,959 | ) | ||||||||||||
Class Y | (27,008,434 | ) | (208,035,130 | ) | (15,826,484 | ) | (105,542,566 | ) | (16,669,258 | ) | (122,056,747 | ) | ||||||||||||
Institutional Class | (218,529 | ) | (1,689,015 | ) | -0- | -0- | -0- | -0- | ||||||||||||||||
Total Repurchases | (285,959,162 | ) | $ | (2,234,360,492 | ) | (528,050,190 | ) | $ | (3,473,291,737 | ) | (701,701,937 | ) | $ | (5,308,254,206 | ) | |||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 35% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. In addition, 0.6% of the outstanding shares of the Fund are owned by Invesco or an investment advisor under common control with Invesco. | |
(b) | Includes automatic conversion of 13,997,523 Class B shares into 13,730,129 Class A shares at a value of $107,228,226. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 11—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Van Kampen Equity and Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Equity and Income Fund (formerly known as Van Kampen Equity and Income Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by other independent auditors whose report dated February 19, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. With the exception of the actual ending account values and expenses of the Institutional Class shares, the example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010, through August 31, 2010. The actual ending account value and expenses of the Institutional Class shares in the example below are based on an investment of $1,000 invested as of close of business June 1, 2010 (commencement date) and held through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period (as of close of business June 1, 2010 through August 31, 2010 for the Institutional Class shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Institutional Class shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period3 | Ratio4 | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 967.29 | $ | 3.82 | $ | 1,021.32 | $ | 3.92 | 0.77 | % | ||||||||||||||||||
B | 1,000.00 | 967.18 | 4.71 | 1,020.42 | 4.84 | 0.95 | ||||||||||||||||||||||||
C | 1,000.00 | 963.17 | 7.47 | 1,017.59 | 7.68 | 1.51 | ||||||||||||||||||||||||
R | 1,000.00 | 966.26 | 5.06 | 1,020.06 | 5.19 | 1.02 | ||||||||||||||||||||||||
Y | 1,000.00 | 968.56 | 2.58 | 1,022.58 | 2.65 | 0.52 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 998.74 | 1.12 | 1,022.94 | 2.29 | 0.45 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010, through August 31, 2010 (as of close of business June 1, 2010 through August 31, 2010 for the Institutional Class shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. For the Institutional Class shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 91 (as of close of business June 1, 2010 through August 31, 2010)/365. Because the Institutional Class shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. |
3 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in the Institutional Class shares of the Fund and other funds because such data is based on a full six month period. |
4 | The expense ratios for Class B and C Shares reflect actual 12b-1 fees of less than 1%. |
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Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. And Its Affiliates |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen Equity and Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco
39 Invesco Van Kampen Equity and Income Fund
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Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 78.62% | |||
Corporate Dividends Received Deduction* | 62.84% | |||
U.S. Treasury Obligations* | 5.34% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
VK-EQI-AR-1 | Invesco Distributors, Inc. |
Annual Report to Shareholders August 31, 2010
Invesco Van Kampen Equity Premium
Income Fund
Income Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
15 | Financial Highlights | |
19 | Notes to Financial Statements | |
26 | Auditor’s Report | |
27 | Fund Expenses | |
28 | Approval of Investment Advisory and Sub-Advisory Agreements | |
30 | Tax Information | |
31 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Van Kampen Equity Premium Income Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Van Kampen Equity Premium Income Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
As part of Invesco’s June 1, 2010, acquisition of Morgan Stanley’s retail asset management business, Van Kampen Equity Premium Income Fund was reorganized into Invesco Van Kampen Equity Premium Income Fund. Effective June 25, 2010, Anthony Shufflebotham, Glen Murphy, Ralph Coutant, Lawson McWhorter and Anne Unflat managed the Fund. A listing of your Fund’s managers appears later in this report.
For the fiscal year ended August 31, 2010, Class A shares of Invesco Van Kampen Equity Premium Income Fund, at net asset value (NAV), lagged the CBOE S&P 500 BuyWrite Index and the Custom Invesco Van Kampen Equity Premium Income Index (75% CBOE S&P 500 BuyWrite Index/25% S&P 500 Index), but outperformed the broad-based S&P 500 Index. The Fund seeks current income with a secondary investment objective of long-term capital appreciation.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 5.26 | % | ||
Class B Shares | 4.40 | |||
Class C Shares | 4.40 | |||
Class Y Shares | 5.37 | |||
S&P 500 Index▼ (Broad Market Index) | 4.93 | |||
Custom Invesco Van Kampen Equity Premium Income Index§ (Style-Specific Index) | 5.99 | |||
CBOE S&P 500 BuyWrite Indexs (Style-Specific Index) | 6.28 | |||
▼ Lipper Inc.; § Invesco, Lipper Inc.; s Bloomberg
How we invest
We manage your Fund to provide exposure to large-cap core equity stocks using both an options portfolio and an underlying stock portfolio. The underlying stock portfolio strives to outperform the S&P 500 Index while potentially minimizing the amount of additional risk relative to the index. The Fund may be used as a long-term allocation to large cap stocks that complements other style-specific strategies within a diversified asset allocation strategy.
Our investment process integrates the following key steps:
n Universe development
n Stock rankings
n Risk assessment
n Stock rankings
n Risk assessment
n Portfolio construction
n Trading
n Trading
While the companies included in the S&P 500 Index are used as a general guide for developing the Fund’s investable universe, non-benchmark stocks may also be considered. Each stock in the universe is evaluated on four factors: company earnings momentum, price trend, management action and relative valuation. The scores from these four factors are combined to arrive at an overall alpha score (excess return forecast) for each stock. Each alpha score is relative to the other securities within the same industry. Stocks are also evaluated on a multitude of other factors to develop a stock-specific risk forecast and transaction cost forecast.
We then incorporate the alpha forecast, risk forecast and transaction cost forecast using an optimizer (a software tool) to build a portfolio that we believe is an optimal balance of the stocks’ potential risk and return. This portfolio is constructed according to certain constraints to increase the probability that the Fund’s relative performance and volatility remain within strategy guidelines. We continually monitor the portfolio and the overall investment process is repeated on a monthly basis to determine which companies should be bought or sold.
In terms of risk management, we seek to minimize any style biases in the portfolio. Active managers typically add value in one of, or a combination of, four areas: beta bias (relative volatility), style bias, stock selection and sector/industry over- and underweight. We attempt to add value through our stock selection decisions. Consequently, our risk management process seeks to neutralize the Fund’s exposure relative to the benchmark with regard to beta, style and sector/industry exposures.
For the options portfolio, the Fund writes CBOE S&P 500 call options. This type of investment is a derivative instrument since the price is derived from one or more underlying assets. The derivative itself is a contract between two or more parties. The call that is sold (or written) will have approximately one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The premium collected from the sale of the call is added to the portfolio’s total value. The call is held until its expiration, at which time a new one-month, near-the-money call is written. The expired option, if exercised, is settled in cash. Near the money is the relationship between an
Portfolio Composition
By sector
Information Technology | 20.1 | % | ||
Consumer Discretionary | 15.8 | |||
Financials | 13.3 | |||
Health Care | 12.7 | |||
Energy | 12.4 | |||
Consumer Staples | 8.6 | |||
Telecommunication Services | 5.2 | |||
Materials | 4.5 | |||
Industrials | 2.7 | |||
Utilities | 1.6 | |||
Money Market Funds Plus Liabilities in Excess of Other Assets | 3.1 |
Top 10 Equity Holdings*
1. | Exxon Mobil Corp. | 4.8 | % | |||||||||||||
2. | Procter & Gamble Co. | 3.8 | ||||||||||||||
3. | Microsoft Corp. | 3.8 | ||||||||||||||
4. | AT&T, Inc. | 3.7 | ||||||||||||||
5. | International Business Machines Corp. | 3.6 | ||||||||||||||
6. | Chevron Corp. | 3.0 | ||||||||||||||
7. | Apple, Inc. | 2.9 | ||||||||||||||
8. | Wal-Mart Stores, Inc. | 2.6 | ||||||||||||||
9. | American Express Co. | 2.4 | ||||||||||||||
10. | Hewlett-Packard Co. | 2.4 |
Total Net Assets | $158.8 million | |
Total Number of Holdings* | 76 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Van Kampen Equity Premium Income Fund |
Table of Contents
option’s strike price and the value of the underlying instrument, where the strike price is near the underlying instrument’s current market price.
Market conditions and your Fund
At the start of the fiscal year covered by this report, investors were optimistic about the prospect of an improving economy given accommodative monetary policy, fiscal stimulus and improving strength in the manufacturing sector. Optimism turned to pessimism when there was little good news to counter the seeds of economic troubles planted in the first quarter, which were already weighing heavily on the market. In the U.S., waning consumer confidence, a worsening employment outlook and continued pressures in the financial sector con-firmed that economic growth was stalling. Internationally, concerns arose from news of slowing economic growth in China and ongoing concerns about debt burdens in the southern eurozone, despite support from their northern peers. With little positive news to support the market, steady gains became steep losses.
At the beginning of the 12-month period covered by this report, riskier assets outperformed securities considered safe havens, such as U.S. Treasury securities. This trend continued through the middle of April 2010. However, renewed credit problems overseas and the market correction that occurred in May and continued into August created a more uncertain environment — prompting investors to favor potential safety over risk. Although recent market volatility created challenges, it also created some investment opportunities as companies with positive fundamentals became more attractively valued.
All sectors of the market posted positive performance, aside from financials, for the reporting period as equity markets rallied through the first quarter of 2010 and in July 2010.1 All investment styles posted positive returns, with mid-cap stocks outperforming large-cap stocks and growth stocks outpacing value stocks for the period.1
The Fund’s performance during the period relative to the Custom Invesco Van Kampen Equity Premium Income Index was attributable to both the options portfolio and the underlying stock portfolio. During the fiscal year, the Fund wrote CBOE S&P 500 call options.
On a sector basis, consumer staples, consumer discretionary, energy, health care and industrials contributed positively to the Fund’s absolute return for the fiscal
year. Stock selection within the health care and energy sectors were primary contributors. Detractors from overall positive Fund performance included stocks in the financials and information technology (IT) sectors.
From an individual stock perspective, AT&T was a top contributor from the telecommunication services sector, and both Merck and Express Scripts contributed positively to the Fund’s relative and absolute performance from the health care sector.
Detractors from Fund performance included Bank of America, from the financials sector, and SanDisk and Micron Technology from the IT sector.
For the fiscal year ended August 31, 2010, a portion of the Fund’s total distributions was characterized as a return of capital for federal income tax purposes. A return of capital occurs when the aggregate amount of the Fund’s distributions exceed the Fund’s aggregate earnings and profits during its fiscal year. It is determined at the end of the fiscal year whether all or a portion of the Fund’s distributions should be characterized as a return of capital. When a return of capital occurs, some of the money an investor invested in the Fund is returned to the investor. Such return of capital distributions may decrease the Fund’s assets and may increase the Fund’s expense ratios.
While the global economy appeared more stable entering 2010 than it did the prior year, forecasting the future direction of the economy remains extremely challenging. The bursting of the U.S. housing bubble, rising unemployment and increasing taxation may likely impede future economic growth, while massive fiscal and monetary stimulus may promote economic growth.
In a world of moderate but positive economic growth, low inflation and prolonged government liquidity support, we believe the potential for equities may exist. Further, valuations remain reasonable by historical standards, especially after the pullback during the second quarter of 2010.
We welcome new investors who joined the Fund during the fiscal year and would like to thank all of our shareholders for their investment in Invesco Van Kampen Equity Premium Income Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Ralph Coutant
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity Premium Income Fund. Mr. Coutant joined Invesco in 1999. He earned a B.S. in business administration from the University of New Hampshire.
Glen Murphy
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity Premium Income Fund. Mr. Murphy joined Invesco in 1995. He earned a B.A. in business administration from the University of Massachusetts at Amherst and an M.S. in finance from Boston College.
Lawson McWhorter
Portfolio manager, is manager of Invesco Van Kampen Equity Premium Income Fund. Mr. McWhorter joined Invesco in 2005. He began his investment career in 1994. Mr. McWhorter earned a B.A. with cum laude honors from Davidson College. He is a Chartered Market Technician.
Anthony Shufflebotham
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Equity Premium Income Fund. Mr. Shufflebotham joined Invesco in 1998. He earned a B.S. in economics, accounting and finance from Oxford Brookes University and an M.S. in finance from Boston College.
Anne Unflat
Portfolio manager, is manager of Invesco Van Kampen Equity Premium Income Fund. Ms. Unflat began her investment career in 1988. She graduated magna cum laude from Queens College with a B.A. in economics. She earned her M.B.A. in finance from St. John’s University.
5 | Invesco Van Kampen Equity Premium Income Fund |
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Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund data from 6/26/06, index data from 6/30/06
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index
results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
6 | Invesco Van Kampen Equity Premium Income Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable
sales charges
sales charges
Class A Shares | ||||||
Inception (6/26/06) | -2.56 | % | ||||
1 | Year | -0.56 | ||||
Class B Shares | ||||||
Inception (6/26/06) | -2.35 | % | ||||
1 | Year | -0.59 | ||||
Class C Shares | ||||||
Inception (6/26/06) | -1.97 | % | ||||
1 | Year | 3.40 | ||||
Class Y Shares | ||||||
Inception (6/26/06) | -1.04 | % | ||||
1 | Year | 5.37 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco Van Kampen Equity Premium Income Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen Equity Premium Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.24%, 1.99%, 1 .99% and 0.99%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||
Inception (6/26/06) | -3.55 | % | ||||
1 | Year | 6.23 | ||||
Class B Shares | ||||||
Inception (6/26/06) | -3.27 | % | ||||
1 | Year | 6.66 | ||||
Class C Shares | ||||||
Inception (6/26/06) | -2.88 | % | ||||
1 | Year | 10.66 | ||||
Class Y Shares | ||||||
Inception (6/26/06) | -1.95 | % | ||||
1 | Year | 12.82 |
prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.39%, 2.14%, 2.14% and 1.14%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Van Kampen Equity Premium Income Fund |
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Invesco Van Kampen Equity Premium Income Fund’s investment objective is to seek current income and its secondary investment objective is to seek long-term capital appreciation.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. | |
n | During periods in which the equity markets are generally unchanged or falling, a diversified equity portfolio such as that held by the Fund which utilizes a covered call option writing strategy may outperform the same portfolio without a covered call option writing strategy because of the additional premiums received from writing covered call options. Similarly, in a modestly rising market, the Fund may also outperform the same portfolio without a covered call option writing strategy. However, in sharply rising markets, the Fund is expected to underperform the |
same portfolio that does not employ a covered call option writing strategy. This underperformance in a sharply rising market could be significant. The Fund’s covered call option writing strategy may not fully protect it against declines in the value of the market. | ||
n | In adverse or volatile market conditions, a portion or all of the Fund’s monthly distributions may constitute a return of part of your original investment or a return of capital. The adviser believes, given current and past market conditions, that there is a strong likelihood that substantially all, if not all, of the distributions for the fiscal year ended August 31, 2010, may be characterized as a return of capital. Such return of capital distributions will decrease the Fund’s assets and may increase the Fund’s expense ratio. | |
n | Shares of exchange-traded funds (ETFs) have many of the same risks as direct investments in common stocks or bonds. In addition, certain ETFs involve leverage which may magnify the gains or losses realized from their underlying investments. | |
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. |
n | The Custom Invesco Van Kampen Equity Premium Index is an unmanaged index created by Invesco to serve as a benchmark for Invesco Van Kampen Equity Premium Income Fund, and is composed of the following indexes: S&P 500 Index (25%) and CBOE BXM Index (75%). |
n | The CBOE S&P 500 BuyWrite Index is an unmanaged index designed to show the hypothetical performance of a portfolio that engages in a buy-write strategy using S&P 500 Index call options. |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charter-holder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | VEPAX | |
Class B Shares | VEPBX | |
Class C Shares | VEPCX | |
Class Y Shares | VEPIX |
8 | Invesco Van Kampen Equity Premium Income Fund |
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Schedule of Investments
August 31, 2010
Shares | Value | |||||||
Common Stocks–97.9% | ||||||||
Airlines–0.4% | ||||||||
Delta Air Lines, Inc.(a) | 57,000 | $ | 596,220 | |||||
Apparel, Accessories & Luxury Goods–0.5% | ||||||||
Jones Apparel Group, Inc. | 56,100 | 862,818 | ||||||
Apparel Retail–1.4% | ||||||||
Gap, Inc. | 129,700 | 2,190,633 | ||||||
Auto Parts & Equipment–0.1% | ||||||||
Magna International, Inc. (Canada) | 2,500 | 194,425 | ||||||
Automobile Manufacturers–2.3% | ||||||||
Ford Motor Co.(a) | 324,700 | 3,665,863 | ||||||
Biotechnology–2.4% | ||||||||
Amgen, Inc.(a) | 74,100 | 3,782,064 | ||||||
Broadcasting & Cable TV–0.1% | ||||||||
Comcast Corp. | 11,700 | 200,304 | ||||||
Casinos & Gaming–0.3% | ||||||||
Las Vegas Sands Corp.(a) | 16,200 | 458,946 | ||||||
Communications Equipment–0.2% | ||||||||
Tellabs, Inc. | 41,900 | 297,490 | ||||||
Computer Hardware–9.1% | ||||||||
Apple, Inc.(a) | 19,050 | 4,636,199 | ||||||
Dell, Inc.(a) | 30,100 | 354,277 | ||||||
Hewlett-Packard Co. | 99,100 | 3,813,368 | ||||||
IBM Corp. | 46,200 | 5,693,226 | ||||||
14,497,070 | ||||||||
Computer Storage & Peripherals–3.4% | ||||||||
Lexmark International, Inc.(a) | 61,700 | 2,158,883 | ||||||
SanDisk Corp.(a) | 71,300 | 2,370,012 | ||||||
Seagate Technology PLC (Ireland)(a) | 89,700 | 908,661 | ||||||
5,437,556 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.0% | ||||||||
Joy Global, Inc. | 6,200 | 351,788 | ||||||
Oshkosh Corp.(a) | 49,100 | 1,221,608 | ||||||
1,573,396 | ||||||||
Consumer Finance–4.1% | ||||||||
American Express Co. | 95,900 | 3,823,533 | ||||||
Capital One Financial Corp. | 69,600 | 2,635,056 | ||||||
6,458,589 | ||||||||
Data Processing & Outsourced Services–0.5% | ||||||||
Visa, Inc., Class A | 12,600 | 869,148 | ||||||
Department Stores–2.0% | ||||||||
Macy’s, Inc. | 162,700 | 3,162,888 | ||||||
Diversified Banks–1.2% | ||||||||
Wells Fargo & Co. | 84,300 | 1,985,265 | ||||||
Diversified Metals & Mining–2.7% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 26,800 | 1,929,064 | ||||||
Titanium Metals Corp.(a) | 126,900 | 2,299,428 | ||||||
4,228,492 | ||||||||
Education Services–0.4% | ||||||||
Career Education Corp.(a) | 36,600 | 641,598 | ||||||
Electronic Manufacturing Services–0.6% | ||||||||
Flextronics International Ltd. (Singapore)(a) | 208,600 | 1,028,398 | ||||||
Footwear–0.6% | ||||||||
Crocs, Inc.(a) | 71,300 | 891,250 | ||||||
General Merchandise Stores–0.5% | ||||||||
Target Corp. | 15,700 | 803,212 | ||||||
Health Care Distributors–0.1% | ||||||||
Cardinal Health, Inc. | 6,500 | 194,740 | ||||||
Home Improvement Retail–1.0% | ||||||||
Home Depot, Inc. | 54,500 | 1,515,645 | ||||||
Homebuilding–3.1% | ||||||||
D.R. Horton, Inc. | 271,900 | 2,789,694 | ||||||
Lennar Corp. | 159,700 | 2,103,249 | ||||||
4,892,943 | ||||||||
Household Products–3.8% | ||||||||
Procter & Gamble Co. | 101,300 | 6,044,571 | ||||||
Hypermarkets & Super Centers–2.5% | ||||||||
Wal-Mart Stores, Inc. | 80,900 | 4,056,326 | ||||||
Independent Power Producers & Energy Traders–1.6% | ||||||||
Constellation Energy Group, Inc. | 85,000 | 2,493,050 | ||||||
Industrial Conglomerates–0.7% | ||||||||
General Electric Co. | 76,000 | 1,100,480 | ||||||
Industrial Machinery–0.7% | ||||||||
Illinois Tool Works, Inc. | 11,800 | 486,868 | ||||||
Ingersoll-Rand PLC (Ireland) | 2,600 | 84,578 | ||||||
Parker Hannifin Corp. | 8,400 | 496,944 | ||||||
1,068,390 | ||||||||
Integrated Oil & Gas–10.7% | ||||||||
Chevron Corp. | 63,400 | 4,701,744 | ||||||
ConocoPhillips | 49,200 | 2,579,556 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Equity Premium Income Fund
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Shares | Value | |||||||
Integrated Oil & Gas–(continued) | ||||||||
Exxon Mobil Corp. | 129,500 | $ | 7,661,220 | |||||
Occidental Petroleum Corp. | 28,500 | 2,082,780 | ||||||
17,025,300 | ||||||||
Integrated Telecommunication Services–4.7% | ||||||||
AT&T, Inc. | 218,200 | 5,897,946 | ||||||
Verizon Communications, Inc. | 51,100 | 1,507,961 | ||||||
7,405,907 | ||||||||
Internet Software & Services–0.2% | ||||||||
Akamai Technologies, Inc.(a) | 1,900 | 87,533 | ||||||
AOL, Inc.(a) | 11,400 | 253,308 | ||||||
340,841 | ||||||||
Life & Health Insurance–2.7% | ||||||||
Aflac, Inc. | 30,600 | 1,445,850 | ||||||
Prudential Financial, Inc. | 55,100 | 2,786,407 | ||||||
4,232,257 | ||||||||
Managed Health Care–4.0% | ||||||||
Humana, Inc.(a) | 52,100 | 2,489,859 | ||||||
UnitedHealth Group, Inc. | 119,600 | 3,793,712 | ||||||
6,283,571 | ||||||||
Movies & Entertainment–2.0% | ||||||||
Time Warner, Inc. | 107,600 | 3,225,848 | ||||||
Multi-Line Insurance–0.4% | ||||||||
Assurant, Inc. | 19,100 | 698,296 | ||||||
Oil & Gas Equipment & Services–1.8% | ||||||||
National Oilwell Varco, Inc. | 75,700 | 2,845,563 | ||||||
Other Diversified Financial Services–0.1% | ||||||||
JPMorgan Chase & Co. | 3,400 | 123,624 | ||||||
Packaged Foods & Meats–0.1% | ||||||||
Tyson Foods, Inc., | 13,600 | 222,768 | ||||||
Paper Products–1.8% | ||||||||
International Paper Co. | 128,200 | 2,622,972 | ||||||
MeadWestvaco Corp. | 13,500 | 293,760 | ||||||
2,916,732 | ||||||||
Pharmaceuticals–6.4% | ||||||||
Bristol-Myers Squibb Co. | 12,500 | 326,000 | ||||||
Eli Lilly & Co. | 102,000 | 3,423,120 | ||||||
Forest Laboratories, Inc.(a) | 18,700 | 510,323 | ||||||
Johnson & Johnson | 56,200 | 3,204,524 | ||||||
Pfizer, Inc. | 170,100 | 2,709,693 | ||||||
10,173,660 | ||||||||
Property & Casualty Insurance–4.2% | ||||||||
Berkshire Hathaway, Inc., Class B(a) | 27,400 | 2,158,572 | ||||||
Travelers Cos., Inc. | 43,400 | 2,125,732 | ||||||
XL Group PLC (Ireland) | 134,100 | 2,401,731 | ||||||
6,686,035 | ||||||||
Publishing–1.7% | ||||||||
Gannett Co., Inc. | 202,000 | 2,442,180 | ||||||
McGraw-Hill Cos., Inc. | 8,100 | 223,965 | ||||||
2,666,145 | ||||||||
Regional Banks–0.8% | ||||||||
Fifth Third Bancorp | 61,300 | 677,365 | ||||||
PNC Financial Services Group, Inc. | 10,400 | 529,984 | ||||||
1,207,349 | ||||||||
Semiconductors–2.4% | ||||||||
Intel Corp. | 87,600 | 1,552,272 | ||||||
Micron Technology, Inc.(a) | 349,600 | 2,260,164 | ||||||
3,812,436 | ||||||||
Systems Software–3.8% | ||||||||
Microsoft Corp. | 257,100 | 6,036,708 | ||||||
Tobacco–2.2% | ||||||||
Philip Morris International, Inc. | 66,600 | 3,425,904 | ||||||
Wireless Telecommunication Services–0.6% | ||||||||
Sprint Nextel Corp.(a) | 244,600 | 997,968 | ||||||
Total Long-Term Investments(b)–97.9% (Cost $172,983,707) | 155,518,682 | |||||||
Money Market Funds–3.2% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 2,508,735 | 2,508,735 | ||||||
Premier Portfolio–Institutional Class(c) | 2,508,735 | 2,508,735 | ||||||
Total Money Market Funds 3.2% (Cost $5,017,470) | 5,017,470 | |||||||
Total Investments–101.1% | ||||||||
(Cost $178,001,177) | 160,536,152 | |||||||
Liabilities in Excess of Other Assets–(0.4%) | (601,553 | ) | ||||||
Written Options–(0.7%) | (1,122,590 | ) | ||||||
Net Assets–100.0% | $ | 158,812,009 | ||||||
Percentages are calculated as a percentage of net assets.
(a) | Non-income producing security. | |
(b) | The Fund may designate up to 100% of its common stock investments to cover outstanding call options. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Equity Premium Income Fund
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Futures contracts outstanding as of August 31, 2010: | ||||||||
Unrealized | ||||||||
Number of | Appreciation/ | |||||||
Long Contracts: | Contracts | Depreciation | ||||||
S&P 500 E-Mini Index, September 2010 (Current Notional Value of $52,415 per contract) | 42 | $ | (48,279 | ) | ||||
Written options outstanding as of August 31, 2010: | ||||||||||||||||||||
Exercise | Expiration | Number of | ||||||||||||||||||
Name of Issuer | Price | Date | Contracts | Premium | Value | |||||||||||||||
Call — S&P 500 Index, September 2010 | $ | 1,070.00 | 09/18/10 | 1,106 | $ | 2,675,675 | $ | (1,122,590 | ) | |||||||||||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 3 in the Notes to Financial Statements for further information regarding fair value measurements.)
The following is a summary of the inputs used as of August 31, 2010 in valuing the Fund’s investments carried at value.
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Investments in an Asset Position | ||||||||||||||||
Equity Securities | $ | 160,536,152 | $ | — | $ | — | $ | 160,536,152 | ||||||||
Investments in a Liability Position | ||||||||||||||||
Written Options | $ | (1,122,590 | ) | $ | — | $ | — | $ | (1,122,590 | ) | ||||||
Futures | (48,279 | ) | — | — | (48,279 | ) | ||||||||||
Total Investments in a Liability Position | $ | (1,170,869 | ) | $ | — | $ | — | $ | (1,170,869 | ) | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Equity Premium Income Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $172,983,707) | $ | 155,518,682 | ||
Investments in affiliated money market, at value and cost | 5,017,470 | |||
Cash | 473 | |||
Receivables: | ||||
Dividends | 489,331 | |||
Fund shares sold | 58,841 | |||
Variation margin on futures | 7,748 | |||
Other | 754 | |||
Total assets | 161,093,299 | |||
Liabilities: | ||||
Payables: | ||||
Options written, at value (premiums received of $2,675,675 ) | 1,122,590 | |||
Fund shares repurchased | 855,331 | |||
Distributor and affiliates | 127,125 | |||
Accrued expenses | 176,244 | |||
Total liabilities | 2,281,290 | |||
Net assets | $ | 158,812,009 | ||
Net assets consist of: | ||||
Capital (par value of $0.01 per share with an unlimited number of shares authorized) | $ | 322,787,747 | ||
Accumulated undistributed net investment income (loss) | (22,213 | ) | ||
Net unrealized appreciation (depreciation) | (15,960,219 | ) | ||
Accumulated net realized gain (loss) | (147,993,306 | ) | ||
Net assets | $ | 158,812,009 | ||
Maximum offering price per share: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share (based on net assets of $82,313,976 and 11,230,560 shares of beneficial interest issued and outstanding) | $ | 7.33 | ||
Maximum sales charge (5.50% of offering price) | 0.43 | |||
Maximum offering price to public | $ | 7.76 | ||
Class B Shares: | ||||
Net asset value and offering price per share (based on net assets of $14,460,194 and 2,000,289 shares of beneficial interest issued and outstanding) | $ | 7.23 | ||
Class C Shares: | ||||
Net asset value and offering price per share (based on net assets of $59,031,470 and 8,164,921 shares of beneficial interest issued and outstanding) | $ | 7.23 | ||
Class Y Shares: | ||||
Net asset value and offering price per share (based on net assets of $3,006,369 and 409,412 shares of beneficial interest issued and outstanding) | $ | 7.34 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Van Kampen Equity Premium Income Fund
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Dividends (net of foreign withholding taxes of $113) | $ | 3,755,069 | ||
Dividends from affiliated money market funds | 1,082 | |||
Interest | 341 | |||
Total income | 3,756,492 | |||
Expenses: | ||||
Investment advisory fee | 1,350,152 | |||
Distribution fees | ||||
Class A | 253,450 | |||
Class B | 168,847 | |||
Class C | 718,053 | |||
Transfer agent fees | 168,406 | |||
Reports to shareholders | 76,998 | |||
Administrative services fees | 69,696 | |||
Professional fees | 55,940 | |||
Registration fees | 51,786 | |||
Custody | 25,681 | |||
Trustees’ and officers’ fees and benefits | 2,730 | |||
Other | 24,272 | |||
Total expenses | 2,966,011 | |||
Expense reduction | 879 | |||
Net expenses | 2,965,132 | |||
Net investment income | 791,360 | |||
Realized and unrealized gain (loss): | ||||
Realized gain (loss): | ||||
Investments | (104,382,824 | ) | ||
Options | 2,639,374 | |||
Futures | 348,887 | |||
Net realized loss | (101,394,563 | ) | ||
Unrealized appreciation (depreciation): | ||||
Beginning of the period | (128,426,220 | ) | ||
End of the period: | ||||
Investments | (17,465,025 | ) | ||
Options | 1,553,085 | |||
Futures | (48,279 | ) | ||
(15,960,219 | ) | |||
Net unrealized appreciation during the period | 112,466,001 | |||
Net realized and unrealized gain | 11,071,438 | |||
Net increase in net assets from operations | $ | 11,862,798 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Equity Premium Income Fund
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Statements of Changes in Net Assets
For the | For the | |||||||
year ended | year ended | |||||||
August 31, 2010 | August 31, 2009 | |||||||
From investment activities: | ||||||||
Operations: | ||||||||
Net investment income | $ | 791,360 | $ | 1,764,485 | ||||
Net realized gain (loss) | (101,394,563 | ) | (38,211,891 | ) | ||||
Net unrealized appreciation (depreciation) during the period | 112,466,001 | (39,048,691 | ) | |||||
Change in net assets from operations | 11,862,798 | (75,496,097 | ) | |||||
Distributions from net investment income: | ||||||||
Class A shares | (338,335 | ) | (1,525,738 | ) | ||||
Class B shares | (49,125 | ) | (82,151 | ) | ||||
Class C shares | (209,194 | ) | (381,251 | ) | ||||
Class Y shares | (11,329 | ) | (39,060 | ) | ||||
(607,983 | ) | (2,028,200 | ) | |||||
Distributions from net realized gain: | ||||||||
Class A shares | -0- | (4,265,305 | ) | |||||
Class B shares | -0- | (656,365 | ) | |||||
Class C shares | -0- | (3,033,524 | ) | |||||
Class Y shares | -0- | (104,640 | ) | |||||
-0- | (8,059,834 | ) | ||||||
Return of capital distribution: | ||||||||
Class A shares | (4,947,521 | ) | (1,607,116 | ) | ||||
Class B shares | (718,355 | ) | (229,849 | ) | ||||
Class C shares | (3,059,076 | ) | (1,062,292 | ) | ||||
Class Y shares | (165,662 | ) | (36,642 | ) | ||||
(8,890,614 | ) | (2,935,899 | ) | |||||
Total distributions | (9,498,597 | ) | (13,023,933 | ) | ||||
Net change in net assets from investment activities | 2,364,201 | (88,520,030 | ) | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 16,021,921 | 22,052,295 | ||||||
Net asset value of shares issued through dividend reinvestment | 8,029,120 | 10,730,378 | ||||||
Cost of shares repurchased | (76,049,890 | ) | (133,184,093 | ) | ||||
Net change in net assets from capital transactions | (51,998,849 | ) | (100,401,420 | ) | ||||
Total decrease in net assets | (49,634,648 | ) | (188,921,450 | ) | ||||
Net assets: | ||||||||
Beginning of the period | 208,446,657 | 397,368,107 | ||||||
End of the period (including accumulated undistributed net investment income (loss) of $(22,213) and $(205,590), respectively) | $ | 158,812,009 | $ | 208,446,657 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Equity Premium Income Fund
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Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class A shares | ||||||||||||||||||||
June 26, 2006 | ||||||||||||||||||||
(Commencement of | ||||||||||||||||||||
Year ended August 31, | operations) to | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | August 31, 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 7.34 | $ | 9.06 | $ | 10.71 | $ | 10.29 | $ | 10.00 | ||||||||||
Net investment income(a) | 0.06 | 0.07 | 0.06 | 0.04 | 0.01 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.34 | (1.39 | ) | (1.02 | ) | 1.11 | 0.36 | |||||||||||||
Total from investment operations | 0.40 | (1.32 | ) | (0.96 | ) | 1.15 | 0.37 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.03 | 0.06 | 0.05 | 0.03 | 0.01 | |||||||||||||||
Distributions from net realized gain | -0- | 0.25 | 0.64 | 0.70 | 0.07 | |||||||||||||||
Return of capital distributions | 0.38 | 0.09 | -0- | -0- | -0- | |||||||||||||||
Total distributions | 0.41 | 0.40 | 0.69 | 0.73 | 0.08 | |||||||||||||||
Net asset value, end of the period | $ | 7.33 | $ | 7.34 | $ | 9.06 | $ | 10.71 | $ | 10.29 | ||||||||||
Total return* | 5.26 | %(b) | (13.90 | )%(c) | (9.31 | )%(c) | 11.31 | %(c) | 3.75 | %**(c) | ||||||||||
Net assets at end of the period (in millions) | $ | 82.3 | $ | 112.3 | $ | 230.0 | $ | 290.7 | $ | 31.2 | ||||||||||
Ratio of expenses to average net assets* | 1.19 | %(e) | 1.24 | %(d) | 1.14 | %(d) | 1.25 | %(d) | 1.24 | %(d) | ||||||||||
Ratio of net investment income to average net assets* | 0.75 | %(e) | 1.11 | % | 0.56 | % | 0.40 | % | 1.32 | % | ||||||||||
Portfolio turnover(f) | 131 | % | 13 | % | 80 | % | 73 | % | 26 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 1.19 | %(e) | 1.40 | %(d) | N/A | 1.29 | %(d) | 4.35 | %(d) | |||||||||||
Ratio of net investment income (loss) to average net assets | 0.75 | %(e) | 0.95 | % | N/A | 0.36 | % | (1.79 | )% | |||||||||||
** | Non-Annualized | |
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended August 31, 2007. | |
(e) | Ratios are based on average daily net assets (000’s omitted) of $101,380. | |
(f) | Portfolio Turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A = Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Van Kampen Equity Premium Income Fund
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Financial Highlights—(continued)
Class B shares | ||||||||||||||||||||
June 26, 2006 | ||||||||||||||||||||
(Commencement of | ||||||||||||||||||||
Year ended August 31, | operations) to | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | August 31, 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 7.25 | $ | 8.97 | $ | 10.64 | $ | 10.28 | $ | 10.00 | ||||||||||
Net Investment income (loss)(a) | 0.00 | (b) | 0.02 | (0.02 | ) | (0.04 | ) | 0.01 | ||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (1.37 | ) | (1.00 | ) | 1.10 | 0.34 | |||||||||||||
Total from investment operations | 0.33 | (1.35 | ) | (1.02 | ) | 1.06 | 0.35 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.02 | 0.03 | 0.01 | 0.00(b | ) | 0.00 | (b) | |||||||||||||
Distributions from net realized gain | 0- | 0.25 | 0.64 | 0.70 | 0.07 | |||||||||||||||
Return of capital distributions | 0.33 | 0.09 | -0- | -0- | -0- | |||||||||||||||
Total distributions | 0.35 | 0.37 | 0.65 | 0.70 | 0.07 | |||||||||||||||
Net asset value, end of the period | $ | 7.23 | $ | 7.25 | $ | 8.97 | $ | 10.64 | $ | 10.28 | ||||||||||
Total return* | 4.40 | %(c) | (14.47 | )%(d) | (9.93 | )%(d) | 10.45 | %(d) | 3.56 | %(d)** | ||||||||||
Net assets at end of the period (in millions) | $ | 14.5 | $ | 17.7 | $ | 26.2 | $ | 31.8 | $ | 5.5 | ||||||||||
Ratio of expenses to average net assets* | 1.94 | %(f) | 1.99 | %(e) | 1.89 | %(e) | 2.00 | %(e) | 1.99 | %(e) | ||||||||||
Ratio of net investment income (loss) to average net assets* | 0.00 | %(f) | 0.36 | % | (0.19 | )% | (0.35 | )% | 0.37 | % | ||||||||||
Portfolio turnover(g) | 131 | % | 13 | % | 80 | % | 73 | % | 26 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 1.94 | %(f) | 2.16 | %(e) | N/A | 2.04 | %(e) | 5.10 | %(e) | |||||||||||
Ratio of net investment income (loss) to average net assets | 0.00 | %(f) | 0.19 | % | N/A | (0.39 | )% | (2.74 | )% | |||||||||||
** | Non-Annualized | |
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended August 31, 2007. | |
(f) | Ratios are based on average daily net assets (000’s omitted) of $16,885. | |
(g) | Portfolio Turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A = Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Van Kampen Equity Premium Income Fund
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Financial Highlights—(continued)
Class C shares | ||||||||||||||||||||
June 26, 2006 | ||||||||||||||||||||
(Commencement of | ||||||||||||||||||||
Year ended August 31, | operations) to | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | August 31, 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 7.25 | $ | 8.97 | $ | 10.64 | $ | 10.28 | $ | 10.00 | ||||||||||
Net investment income (loss)(a) | 0.00 | (b) | 0.02 | (0.02 | ) | (0.04 | ) | 0.01 | ||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (1.37 | ) | (1.00 | ) | 1.10 | 0.35 | |||||||||||||
Total from investment operations | 0.33 | (1.35 | ) | (1.02 | ) | 1.06 | 0.36 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.02 | 0.03 | 0.01 | 0.00 | (b) | 0.01 | ||||||||||||||
Distributions from net realized gain | -0- | 0.25 | 0.64 | 0.70 | 0.07 | |||||||||||||||
Return of capital distributions | 0.33 | 0.09 | -0- | -0- | -0- | |||||||||||||||
Total distributions | 0.35 | 0.37 | 0.65 | 0.70 | 0.08 | |||||||||||||||
Net asset value, end of the period | $ | 7.23 | $ | 7.25 | $ | 8.97 | $ | 10.64 | $ | 10.28 | ||||||||||
Total return* | 4.40 | %(c) | (14.47 | )%(d) | (9.93 | )%(d) | 10.45 | %(d) | 3.57 | %(d)** | ||||||||||
Net assets at end of the period (in millions) | $ | 59.0 | $ | 76.9 | $ | 137.1 | $ | 154.6 | $ | 13.0 | ||||||||||
Ratio of expenses to average net assets* | 1.94 | %(f) | 1.99 | %(e) | 1.89 | %(e) | 2.00 | %(e) | 1.99 | %(e) | ||||||||||
Ratio of net investment income (loss) to average net assets* | 0.00 | %(f) | 0.36 | % | (0.19 | )% | (0.35 | )% | 0.46 | % | ||||||||||
Portfolio turnover(g) | 131 | % | 13 | % | 80 | % | 73 | % | 26 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 1.94 | %(f) | 2.15 | %(e) | N/A | 2.04 | %(e) | 5.10 | %(e) | |||||||||||
Ratio of net investment income (loss) to average net assets | 0.00 | %(f) | 0.20 | % | N/A | (0.39 | )% | (2.65 | )% | |||||||||||
** | Non-Annualized | |
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and services fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(e) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended August 31, 2007. | |
(f) | Ratios are based on average daily net assets (000’s omitted) of $71,805. | |
(g) | Portfolio Turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A = Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
17 Invesco Van Kampen Equity Premium Income Fund
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Financial Highlights—(continued)
Class Y sharesˆ | ||||||||||||||||||||
June 26, 2006 | ||||||||||||||||||||
(Commencement of | ||||||||||||||||||||
Year ended August 31, | operations) to | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | August 31, 2006 | ||||||||||||||||
Net asset value, beginning of the period | $ | 7.36 | $ | 9.07 | $ | 10.71 | $ | 10.29 | $ | 10.00 | ||||||||||
Net Investment income(a) | 0.08 | 0.10 | 0.08 | 0.07 | 0.02 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.32 | (1.40 | ) | (1.01 | ) | 1.09 | 0.35 | |||||||||||||
Total from investment operations | 0.40 | (1.30 | ) | (0.93 | ) | 1.16 | 0.37 | |||||||||||||
Less: | ||||||||||||||||||||
Distributions from net investment income | 0.03 | 0.07 | 0.07 | 0.04 | 0.01 | |||||||||||||||
Distributions from net realized gain | -0- | 0.25 | 0.64 | 0.70 | 0.07 | |||||||||||||||
Return of capital distributions | 0.39 | 0.09 | -0- | -0- | -0- | |||||||||||||||
Total distributions | 0.42 | 0.41 | 0.71 | 0.74 | 0.08 | |||||||||||||||
Net asset value, end of the period | $ | 7.34 | $ | 7.36 | $ | 9.07 | $ | 10.71 | $ | 10.29 | ||||||||||
Total return* | 5.37 | %(b) | (13.63 | )%(c) | (9.04 | )%(c) | 11.44 | %(c) | 3.77 | %(c)** | ||||||||||
Net assets at end of the period (in millions) | $ | 3.0 | $ | 1.6 | $ | 4.1 | $ | 2.7 | $ | 2.7 | ||||||||||
Ratio of expenses to average net assets* | 0.94 | %(e) | 0.99 | %(d) | 0.89 | %(d) | 1.00 | %(d) | 0.99 | %(d) | ||||||||||
Ratio of net investment income to average net assets* | 1.02 | %(e) | 1.51 | % | 0.81 | % | 0.65 | % | 1.33 | % | ||||||||||
Portfolio turnover(f) | 131 | % | 13 | % | 80 | % | 73 | % | 26 | % | ||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||
Ratio of expenses to average net assets | 0.94 | %(e) | 1.12 | %(d) | N/A | 1.04 | %(d) | 4.10 | %(d) | |||||||||||
Ratio of net investment income (loss) to average net assets | 1.02 | %(e) | 1.38 | % | N/A | 0.61 | % | (1.78 | )% | |||||||||||
** | Non-Annualize | |
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption on Fund shares. | |
(d) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended August 31, 2007. | |
(e) | Ratios are based on average daily net assets (000’s omitted) of $3,150. | |
(f) | Portfolio Turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A = Not Applicable
ˆ | On June 1, 2010, the Fund’s former Class I Shares were reorganized into Class Y Shares. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
18 Invesco Van Kampen Equity Premium Income Fund
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Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Equity Premium Income Fund (the “Fund”) is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Equity Premium Income Fund (the “Acquired Fund”), an investment portfolio of Van Kampen Equity Trust II. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s – Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is to seek current income and its secondary investment object is to seek long-term capital appreciation.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. |
19 Invesco Van Kampen Equity Premium Income Fund
Table of Contents
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are generally declared and paid annually. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Eligible securities for collateral are securities consistent with the Fund’s investment objectives and may consist of U.S. Government Securities, U.S. Government Sponsored Agency Securities and/or, Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements, pursuant to procedures approved by the Board of Trustees, are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates (“Joint repurchase agreements”). The principal amount of the repurchase agreement is equal to the value at period-end. If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, the Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the collateral and loss of income. | |
J. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or |
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delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | ||
K. | Call Options Written — The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently valued to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A 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. | |
L. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. | |
The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | ||
M. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .70% | ||
Next $500 million | 0 | .65% | ||
Over $1 billion | 0 | .60% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $1,055,607 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, and Class Y shares to 1.24%, 1.99%, 1.99%, and 0.99%, respectively, of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to
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amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the period ended August 31, 2010, the Adviser waived advisory fees of $879.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $22,425 to VKII. For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
Prior to the Reorganization, under a legal services agreement, VKII provided legal services to the Acquired Fund. Pursuant to such agreement, the Acquired Fund paid $17,189 to VKII.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended August 31, 2010, IIS was paid $50,920 for providing such services. Prior to the Reorganization, the Acquired Fund paid $52,182 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares and Class C shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $889,343 to VKFI.
For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees. Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $1,455 in front-end sales commissions from the sale of Class A shares and $0, $14,834 and $623 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. Prior to the Reorganization, VKFI retained $14,360 in front-end sales commissions from the sale of Class A shares and $41,569, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
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NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Index risk | $ | -0- | $ | (1,122,590 | ) | |||
Index risk | ||||||||
Futures contracts(a) | -0- | (48,279 | ) | |||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended August 31, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Futures* | Options* | |||||||
Realized Gain (Loss) | ||||||||
Index risk | $ | 348,887 | $ | 2,639,374 | ||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Index risk | $ | (48,279 | ) | $ | 694,281 | |||
* | The average value of futures and options outstanding during the period was $10,210 and $(2,267,198), respectively. |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of | Premiums | |||||||
Contracts | Received | |||||||
Beginning of period | 1,530 | $ | 2,761,604 | |||||
Written | 19,812 | 41,592,680 | ||||||
Closed | (12,550 | ) | (24,362,749 | ) | ||||
Exercised | (1,150 | ) | (4,941,534 | ) | ||||
Expired | (6,536 | ) | (12,374,326 | ) | ||||
End of period | 1,106 | $ | 2,675,675 | |||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended August 31, 2010, the Fund paid legal fees of $0 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. Prior to the Reorganization, the Acquired Fund recognized expense of $4,026 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by
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earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 607,983 | $ | 8,064,083 | ||||
Long-term capital gain | 2,268,017 | |||||||
Return of capital | 8,890,614 | 2,935,899 | ||||||
Total distributions | $ | 9,498,597 | $ | 13,267,999 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Net unrealized (depreciation) — investments | $ | (17,688,027 | ) | |
Post-October deferrals | (74,962,251 | ) | ||
Capital loss carryforward | (71,325,460 | ) | ||
Shares of beneficial interest | 322,787,747 | |||
Total net assets | $ | 158,812,009 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2018 | $ | 71,325,460 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $250,461,826 and $313,632,778, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 803,877 | ||
Aggregate unrealized (depreciation) of investment securities | (18,491,904 | ) | ||
Net unrealized depreciation of investment securities | $ | (17,688,027 | ) | |
Cost of investments for tax purposes is $178,224,179 |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, undistributed net investment income (loss) was increased by $8,890,614 and shares of beneficial interest decreased by $8,890,614. This reclassification had no effect on the net assets of the Fund.
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NOTE 10—Share Information
For the year ended | For the year ended | |||||||||||||||
August 31, 2010(a) | August 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Class A | 1,176,321 | (b) | $ | 9,154,704 | (b) | 1,737,444 | $ | 11,576,397 | ||||||||
Class B | 79,389 | 610,706 | 269,048 | 1,827,439 | ||||||||||||
Class C | 461,233 | 3,522,581 | 915,501 | 5,835,518 | ||||||||||||
Class Y | 353,239 | 2,733,930 | 449,723 | 2,812,941 | ||||||||||||
Total Sales | 2,070,182 | $ | 16,021,921 | 3,371,716 | $ | 22,052,295 | ||||||||||
Dividend Reinvestment: | ||||||||||||||||
Class A | 623,752 | $ | 4,794,997 | 980,970 | $ | 6,432,419 | ||||||||||
Class B | 81,350 | 616,110 | 121,450 | 785,952 | ||||||||||||
Class C | 335,294 | 2,540,171 | 528,688 | 3,424,867 | ||||||||||||
Class Y | 10,115 | 77,842 | 13,479 | 87,140 | ||||||||||||
Total Dividend Reinvestment | 1,050,511 | $ | 8,029,120 | 1,644,587 | $ | 10,730,378 | ||||||||||
Repurchases: | ||||||||||||||||
Class A | (5,860,510 | ) | $ | (45,379,804 | ) | (12,809,381 | ) | $ | (84,024,936 | ) | ||||||
Class B | (601,851 | )(b) | (4,588,082 | )(b) | (872,254 | ) | (5,527,505 | ) | ||||||||
Class C | (3,240,660 | ) | (24,724,806 | ) | (6,119,529 | ) | (39,623,987 | ) | ||||||||
Class Y | (173,137 | ) | (1,357,198 | ) | (692,893 | ) | (4,007,665 | ) | ||||||||
Total Repurchases | (9,876,158 | ) | $ | (76,049,890 | ) | (20,494,057 | ) | $ | (133,184,093 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 58% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Includes automatic conversion of 17,258 Class B shares into 17,017 Class A shares at a value of $129,076. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 11—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Van Kampen Equity Premium Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Equity Premium Income Fund (formerly known as Van Kampen Equity Premium Income Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of changes in net assets for the year ended August 31, 2009 and the financial highlights of the Fund for the periods ended August 31, 2009 and prior were audited by other independent auditors whose report dated October 26, 2009 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio3 | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 952.08 | $ | 5.61 | $ | 1,019.46 | $ | 5.80 | 1.14 | % | ||||||||||||||||||
B | 1,000.00 | 948.97 | 9.28 | 1,015.68 | 9.60 | 1.89 | ||||||||||||||||||||||||
C | 1,000.00 | 948.95 | 9.33 | 1,015.63 | 9.65 | 1.90 | ||||||||||||||||||||||||
Y | 1,000.00 | 953.30 | 4.38 | 1,020.72 | 4.53 | 0.89 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
3 | The expense ratios reflect an expense waiver. |
27 Invesco Van Kampen Equity Premium Income Fund
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Approval of Investment Advisory and Sub-Advisory Agreements
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen Equity Premium Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
28 Invesco Van Kampen Equity Premium Income Fund
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services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
29 Invesco Van Kampen Equity Premium Income Fund
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 8.06% | |||
Corporate Dividends Received Deduction* | 8.06% | |||
U.S. Treasury Obligations* | 0% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
30 Invesco Van Kampen Equity Premium Income Fund
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Equity Premium Income Fund was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 13,483,428 | 379,240 | 914,019 | 0 |
31 Invesco Van Kampen Equity Premium Income Fund
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
VK-EQPI-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Van Kampen Growth and Income Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
15 | Financial Highlights | |
20 | Notes to Financial Statements | |
26 | Auditor's Report | |
27 | Fund Expenses | |
28 | Approval of Investment Advisory and Sub-Advisory Agreements | |
30 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Van Kampen Growth and Income Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Van Kampen Growth and Income Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the nine months ended August 31, 2010, Invesco Van Kampen Growth and Income Fund underperformed its benchmark index, the Russell 1000 Value Index. We apply a bottom-up stock selection process, and due to stock selection in various sectors, the Fund underperformed its benchmark index.
Your Fund’s long-term performance appears later in this report. |
Fund vs. Indexes
Cumulative total returns, 11/30/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -5.60 | % | ||
Class B Shares | -5.74 | |||
Class C Shares | -6.13 | |||
Class R Shares | -5.78 | |||
Class Y Shares | -5.41 | |||
Institutional Class Shares* | -5.48 | |||
Russell 1000 Value Index▼ (Broad Market/Style-Specific Index) | -1.31 | |||
▼ | Lipper Inc. | |
* | Share class incepted during the reporting period. For detailed explanation of Invesco Van Kampen Growth and Income Fund performance see page 7. |
How we invest
Our investment philosophy is best described as value with a catalyst. We believe that undervalued companies experiencing positive changes (i.e., “catalysts”) may have the potential to generate long-term stock price growth for shareholders.
We seek companies that are:
n | Out of favor with investors. | |
n | Underearning relative to their potential. | |
n | Attractively valued. |
Once we identify these companies, we look for catalysts that may improve the financial results and/or correct the undervaluation. Examples of catalysts include improved operational efficiency, changing industry dynamics and/or a change in management.
We run potential investments through a series of quantitative screens including, but not limited to, return on capital and
enterprise value to sales metrics. We then conduct fundamental research on the most attractive opportunities. The research process includes a thorough review of a company’s financial statements, an evaluation of its competitive position and stability and meetings with its executives. We also value the company under various scenarios to determine if the investment is an attractive opportunity relative to its potential risk. At this point in our process, we identify the positive catalyst, which is a prerequisite for potential investment. Finally, we set a price target for a stock based on normalized earnings and historical valuation multiples.
In short, our objective is to exploit negative sentiment toward a company’s stock by analyzing the company’s operations in the context of a cyclical environment and identifying one or
more catalysts that may improve the company’s financial performance. Improved financial performance, in turn, has the potential to drive the company’s stock price higher.
We typically sell an investment when it reaches our estimate of fair value or when we identify a more attractive investment opportunity.
Market conditions and your Fund
At the beginning of the nine month period covered by this report, riskier assets outperformed securities considered safe havens, such as U.S. Treasuries. This trend continued through the middle of April 2010. However, renewed credit problems in Europe and the market correction that occurred in May and continued into August, created a more uncertain environment – prompting investors to favor potential safety over risk. Although recent market volatility created challenges, it also created some investment opportunities because companies with positive fundamentals became more attractively valued. Additionally, despite the market finishing lower at the end of this reporting period, there were a number of positives, including improved market liquidity, lean corporate infrastructures and merger and acquisition activity.
An overweight allocation to consumer discretionary was one of the largest contributors to Fund performance, as media stocks performed well in this sector due to increased advertising revenue. Stock selection in health care was another contributor to performance. Notably, Genzyme‘s stock price rose on the announcement from Sanofi-aventis of its interest in acquiring Genzyme. We sold our Genzyme holdings on the acquisition announcement and resulting increase in stock price.
Portfolio Composition
By sector
Financials | 20.2 | % | ||
Energy | 12.1 | |||
Consumer Discretionary | 11.5 | |||
Information Technology | 10.9 | |||
Consumer Staples | 10.6 | |||
Health Care | 10.5 | |||
Industrials | 9.7 | |||
Utilities | 4.7 | |||
Telecommunication Services | 2.8 | |||
Materials | 2.7 | |||
Money Market Funds Plus Other Assets | ||||
Less Liabilities | 4.3 |
Top 10 Equity Holdings*
1. | JP Morgan Chase & Co. | 4.7 | % | |||||
2. | Marsh & McLennan Cos., Inc. | 3.4 | ||||||
3. | General Electric Co. | 3.2 | ||||||
4. | Viacom, Inc. | 2.9 | ||||||
5. | eBay, Inc. | 2.6 | ||||||
6. | Kraft Foods, Inc. | 2.3 | ||||||
7. | American Electric Power Co., Inc. | 2.3 | ||||||
8. | Occidental Petroleum Corp. | 2.3 | ||||||
9. | Bank of America Corp. | 2.1 | ||||||
10. | Wal-Mart Stores, Inc. | 2.0 |
Total Net Assets | $5.9 billion | |||
Total Number of Holdings* | 78 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Van Kampen Growth and Income Fund |
Table of Contents
Stock selection in the financials sector was the largest relative detractor. Overall, financial stocks performed strongly over the reporting period. However, the Fund was underweight in the financials sector relative to its benchmark, and our financial stocks did not appreciate as much as those of the index. We focused on what we believed were potentially lower risk financial companies with stronger balance sheets and less credit risk given the systemic risk in most financial stocks. However, the Fund had no exposure to real estate investment trusts (REITs), which outperformed during the period. The Fund’s lack of exposure to REITs was based on our concern that valuations were high and the commercial real estate market has weakened.
Technology stocks also detracted from relative Fund performance. The Fund was overweight in this sector versus the Russell 1000 Value Index and was adversely affected by exposure to stocks in the hardware and equipment industry. On a stock-specific basis, Hewlett-Packard negatively affected Fund performance due to a significant sell off after announcing the impending departure of its CEO.
Finally, Fund holdings in the energy sector detracted from performance due to heavy exposure to exploration and production companies. Fund holdings BP and Anadarko Petroleum were hurt by the oil spill in the Gulf of Mexico. As a result, we eliminated our position in BP and reduced our exposure to Anadarko Petroleum.
Equity markets experienced a strong recovery during the period covered by this report. We believe that market volatility, and the market correction that began in the second quarter of 2010, have created opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals may be reflected in companies’ stock prices.
As always, we would like to caution investors against making investment decisions based on short-term performance. We recommend that you consult a financial adviser to discuss your individual financial program.
Thank you for your investment in Invesco Van Kampen Growth and Income Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Thomas Bastian
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen Growth and Income Fund. Mr. Bastian joined Invesco in 2010. He earned a B.A. in accounting from St. John’s University and an M.B.A. in finance from the University of Michigan.
Mark Laskin
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Growth and Income Fund. Mr. Laskin joined Invesco in 2010. He earned a B.A. in history from Swarthmore College and an M.B.A. and M.A. from the Wharton School and Lauder Institute, respectively, of the University of Pennsylvania.
Mary Jayne Maly
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Growth and Income Fund. Ms. Maly joined Invesco in 2010. She earned a B.A. from the University of Pittsburgh and an M.B.A. from the American Graduate School of International Management.
Sergio Marcheli
Portfolio manager, is manager of Invesco Van Kampen Growth and Income Fund. Mr. Marcheli joined Invesco in 2010. He earned a B.B.A. from the University of Houston and an M.B.A. from the University of St. Thomas.
James Roeder
Chartered Financial Analyst, Certified Public Accountant, portfolio manager, is manager of Invesco Van Kampen Growth and Income Fund. Mr. Roeder joined Invesco in 2010. He earned a B.S. in accounting from Clemson University and an M.B.A. in economics and finance from the University of Chicago Graduate School of Business.
5 | Invesco Van Kampen Growth and Income Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Fund and index data from 8/31/00
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses and management fees; performance of a market index does not. Performance shown in the chart and
table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart.
The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
6 | Invesco Van Kampen Growth and Income Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||||||
Inception (8/1/46) | 9.04 | % | ||||||
10 | Years | 1.60 | ||||||
5 | Years | -1.78 | ||||||
1 | Year | -3.45 | ||||||
Class B Shares | ||||||||
Inception (8/2/93) | 8.08 | % | ||||||
10 | Years | 1.79 | ||||||
5 | Years | -1.01 | ||||||
1 | Year | -2.70 | ||||||
Class C Shares | ||||||||
Inception (8/2/93) | 7.67 | % | ||||||
10 | Years | 1.47 | ||||||
5 | Years | -1.33 | ||||||
1 | Year | 0.70 | ||||||
Class R Shares | ||||||||
Inception (10/1/02) | 5.62 | % | ||||||
5 | Years | -0.85 | ||||||
1 | Year | 2.19 | ||||||
Class Y Shares | ||||||||
Inception (10/19/04) | 2.60 | % | ||||||
5 | Years | -0.35 | ||||||
1 | Year | 2.70 | ||||||
Institutional Class Shares | ||||||||
10 | Years | 2.22 | % | |||||
5 | Years | -0.59 | ||||||
1 | Year | 2.58 |
Effective June 1, 2010, Class A, Class B, Class C, Class R and Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C, Class R and Class Y shares, respectively, of Invesco Van Kampen Growth and Income Fund. Returns shown above for Class A, Class B, Class C, Class R and Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen Growth and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
Institutional Class shares incepted on June 1, 2010. Performance shown prior to that date is that of the predecessor fund’s Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||||
Inception (8/1/46) | 9.03 | % | ||||||
10 | Years | 2.31 | ||||||
5 | Years | -1.41 | ||||||
1 | Year | 8.68 | ||||||
Class B Shares | ||||||||
Inception (8/2/93) | 8.04 | % | ||||||
10 | Years | 2.48 | ||||||
5 | Years | -0.66 | ||||||
1 | Year | 10.14 | ||||||
Class C Shares | ||||||||
Inception (8/2/93) | 7.63 | % | ||||||
10 | Years | 2.17 | ||||||
5 | Years | -0.95 | ||||||
1 | Year | 13.39 | ||||||
Class R Shares | ||||||||
Inception (10/1/02) | 5.48 | % | ||||||
5 | Years | -0.48 | ||||||
1 | Year | 14.98 | ||||||
Class Y Shares | ||||||||
Inception (10/19/04) | 2.31 | % | ||||||
5 | Years | 0.02 | ||||||
1 | Year | 15.48 | ||||||
Institutional Class Shares | ||||||||
10 | Years | 2.92 | % | |||||
5 | Years | -0.23 | ||||||
1 | Year | 15.29 |
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 0.88%, 1.63%, 1.63%, 1.13%, 0.63% and 0.49%, respectively.1 The total annual Fund operating expense ratio set forth in the
most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 0.89%, 1.64%, 1.64%, 1.14%, 0.64% and 0.50%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class R, Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Van Kampen Growth and Income Fund |
Table of Contents
Invesco Van Kampen Growth and Income Fund’s investment objective is to seek income and long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. | |
n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. | |
n | Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions |
may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. | ||
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. |
About indexes used in this report
n | The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | ACGIX | |||
Class B Shares | ACGJX | |||
Class C Shares | ACGKX | |||
Class R Shares | ACGLX | |||
Class Y Shares | ACGMX | |||
Institutional Class Shares | ACGQX |
8 | Invesco Van Kampen Growth and Income Fund |
Table of Contents
Schedule of Investments
August 31, 2010
Shares | Value | |||||||
Common Stocks–95.7% | ||||||||
Air Freight & Logistics–0.5% | ||||||||
FedEx Corp. | 391,601 | $ | 30,564,458 | |||||
Apparel Retail–0.5% | ||||||||
Gap, Inc. | 1,735,931 | 29,319,875 | ||||||
Application Software–1.0% | ||||||||
Amdocs Ltd. (Guernsey)(a) | 2,253,934 | 59,120,689 | ||||||
Asset Management & Custody Banks–1.2% | ||||||||
Janus Capital Group, Inc. | 1,635,042 | 14,846,182 | ||||||
State Street Corp. | 1,579,642 | 55,413,841 | ||||||
70,260,023 | ||||||||
Automobile Manufacturers–0.6% | ||||||||
Ford Motor Co.(a) | 3,439,672 | 38,833,897 | ||||||
Broadcasting & Cable TV–1.6% | ||||||||
Comcast Corp., Class A | 5,689,356 | 97,401,775 | ||||||
Broadcasting–Diversified–1.2% | ||||||||
Time Warner Cable, Inc. | 1,434,683 | 74,043,990 | ||||||
Communications Equipment–1.2% | ||||||||
Cisco Systems, Inc.(a) | 3,547,745 | 71,132,287 | ||||||
Computer Hardware–2.6% | ||||||||
Dell, Inc.(a) | 5,220,093 | 61,440,495 | ||||||
Hewlett-Packard Co. | 2,524,161 | 97,129,715 | ||||||
158,570,210 | ||||||||
Consumer Electronics–1.1% | ||||||||
Sony Corp.–ADR (Japan) | 2,265,458 | 63,410,169 | ||||||
Data Processing & Outsourced Services–1.1% | ||||||||
Western Union Co. | 4,037,215 | 63,303,531 | ||||||
Diversified Banks–1.4% | ||||||||
U.S. Bancorp | 1,702,489 | 35,411,771 | ||||||
Wells Fargo & Co. | 2,156,208 | 50,778,699 | ||||||
86,190,470 | ||||||||
Diversified Chemicals–2.7% | ||||||||
Bayer AG–ADR (Germany) | 1,010,812 | 61,858,157 | ||||||
Dow Chemical Co. | 1,945,836 | 47,420,023 | ||||||
PPG Industries, Inc. | 777,900 | 51,209,157 | ||||||
160,487,337 | ||||||||
Diversified Commercial & Professional Services–0.6% | ||||||||
Cintas Corp. | 1,355,889 | 34,561,611 | ||||||
Drug Retail–1.2% | ||||||||
Walgreen Co. | 2,774,997 | 74,591,919 | ||||||
Electric Utilities–4.7% | ||||||||
American Electric Power Co., Inc. | 3,944,614 | 139,678,781 | ||||||
Edison International, Inc. | 1,112,892 | 37,560,105 | ||||||
Entergy Corp. | 656,350 | 51,746,634 | ||||||
FirstEnergy Corp. | 1,409,226 | 51,479,026 | ||||||
280,464,546 | ||||||||
Food Distributors–1.0% | ||||||||
Sysco Corp. | 2,172,674 | 59,726,808 | ||||||
Health Care Distributors–0.6% | ||||||||
Cardinal Health, Inc. | 1,233,318 | 36,950,207 | ||||||
Health Care Equipment–1.1% | ||||||||
Covidien PLC (Ireland) | 1,912,079 | 67,572,872 | ||||||
Home Improvement Retail–1.3% | ||||||||
Home Depot, Inc. | 2,774,283 | 77,152,810 | ||||||
Human Resource & Employment Services–1.0% | ||||||||
Manpower, Inc. | 762,159 | 32,391,758 | ||||||
Robert Half International, Inc. | 1,180,154 | 25,467,723 | ||||||
57,859,481 | ||||||||
Hypermarkets & Super Centers–2.0% | ||||||||
Wal-Mart Stores, Inc. | 2,381,605 | 119,413,675 | ||||||
Industrial Conglomerates–5.6% | ||||||||
General Electric Co. | 13,348,133 | 193,280,966 | ||||||
Siemens AG–ADR (Germany) | 515,524 | 46,670,387 | ||||||
Tyco International Ltd. (Switzerland) | 2,527,700 | 94,232,656 | ||||||
334,184,009 | ||||||||
Industrial Machinery–1.5% | ||||||||
Dover Corp. | 1,022,345 | 45,760,162 | ||||||
Ingersoll-Rand PLC (Ireland) | 1,339,437 | 43,571,886 | ||||||
89,332,048 | ||||||||
Insurance Brokers–3.4% | ||||||||
Marsh & McLennan Cos., Inc. | 8,494,131 | 201,480,787 | ||||||
Integrated Oil & Gas–7.5% | ||||||||
ConocoPhillips | 1,330,822 | 69,774,997 | ||||||
Exxon Mobil Corp. | 1,018,972 | 60,282,384 | ||||||
Hess Corp. | 1,433,286 | 72,022,622 | ||||||
Occidental Petroleum Corp. | 1,847,256 | 134,997,468 | ||||||
Royal Dutch Shell PLC, Class A–ADR (United Kingdom) | 2,104,376 | 111,637,147 | ||||||
448,714,618 | ||||||||
Integrated Telecommunication Services–1.1% | ||||||||
Verizon Communications, Inc. | 2,174,183 | 64,160,140 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Growth and Income Fund
Table of Contents
Shares | Value | |||||||
Internet Software & Services–3.7% | ||||||||
eBay, Inc.(a) | 6,826,868 | $ | 158,656,412 | |||||
Yahoo!, Inc.(a) | 4,772,426 | 62,423,332 | ||||||
221,079,744 | ||||||||
Investment Banking & Brokerage–1.8% | ||||||||
Charles Schwab Corp. | 5,960,383 | 76,054,487 | ||||||
Morgan Stanley Co. | 1,263,792 | 31,203,024 | ||||||
107,257,511 | ||||||||
Life & Health Insurance–0.7% | ||||||||
Principal Financial Group, Inc. | 1,824,197 | 42,047,741 | ||||||
Managed Health Care–1.8% | ||||||||
UnitedHealth Group, Inc. | 3,478,432 | 110,335,863 | ||||||
Motorcycle Manufacturers–0.4% | ||||||||
Harley-Davidson, Inc. | 871,855 | 21,203,514 | ||||||
Movies & Entertainment–4.8% | ||||||||
Time Warner, Inc. | 3,862,823 | 115,807,434 | ||||||
Viacom, Inc., Class B | 5,472,167 | 171,935,487 | ||||||
287,742,921 | ||||||||
Office Services & Supplies–0.6% | ||||||||
Avery Dennison Corp. | 1,088,670 | 35,403,548 | ||||||
Oil & Gas Equipment & Services–1.5% | ||||||||
Cameron International Corp.(a) | 523,595 | 19,257,824 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 1,295,734 | 69,101,494 | ||||||
88,359,318 | ||||||||
Oil & Gas Exploration & Production–3.1% | ||||||||
Anadarko Petroleum Corp. | 2,099,036 | 96,534,666 | ||||||
Devon Energy Corp. | 953,132 | 57,454,797 | ||||||
Noble Energy, Inc. | 467,821 | 32,644,549 | ||||||
186,634,012 | ||||||||
Other Diversified Financial Services–7.7% | ||||||||
Bank of America Corp. | 10,052,357 | 125,151,845 | ||||||
Citigroup, Inc.(a) | 15,900,082 | 59,148,305 | ||||||
JPMorgan Chase & Co. | 7,678,279 | 279,182,224 | ||||||
463,482,374 | ||||||||
Packaged Foods & Meats–3.6% | ||||||||
Kraft Foods, Inc., Class A | 4,681,108 | 140,199,185 | ||||||
Unilever NV (Netherlands) | 2,872,481 | 76,953,766 | ||||||
217,152,951 | ||||||||
Personal Products–1.1% | ||||||||
Avon Products, Inc. | 2,233,248 | 64,987,517 | ||||||
Pharmaceuticals–7.0% | ||||||||
Abbott Laboratories | 970,260 | 47,872,629 | ||||||
Bristol-Myers Squibb Co. | 4,532,402 | 118,205,044 | ||||||
Merck & Co., Inc. | 2,792,637 | 98,189,117 | ||||||
Pfizer, Inc. | 5,751,860 | 91,627,130 | ||||||
Roche Holdings, Inc.–ADR (Switzerland) | 1,797,357 | 61,152,735 | ||||||
417,046,655 | ||||||||
Property & Casualty Insurance–1.1% | ||||||||
Chubb Corp. | 1,225,560 | 67,552,867 | ||||||
Regional Banks–2.8% | ||||||||
BB&T Corp. | 1,485,382 | 32,856,650 | ||||||
Fifth Third Bancorp | 2,717,314 | 30,026,320 | ||||||
PNC Financial Services Group, Inc. | 2,101,939 | 107,114,811 | ||||||
169,997,781 | ||||||||
Semiconductor Equipment–0.3% | ||||||||
Lam Research Corp.(a) | 537,868 | 19,422,413 | ||||||
Semiconductors–1.0% | ||||||||
Intel Corp. | 3,521,894 | 62,407,962 | ||||||
Soft Drinks–1.6% | ||||||||
Coca-Cola Co. | 929,865 | 51,998,051 | ||||||
Coca-Cola Enterprises, Inc. | 1,594,735 | 45,386,158 | ||||||
97,384,209 | ||||||||
Wireless Telecommunication Services–1.8% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 4,396,022 | 106,295,812 | ||||||
Total Common Stocks–95.7% (Cost $6,004,036,272) | 5,734,598,955 | |||||||
Money Market Funds–4.1% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 122,605,989 | 122,605,989 | ||||||
Premier Portfolio–Institutional Class(b) | 122,605,989 | 122,605,989 | ||||||
Total Money Market Funds–4.1% (Cost $245,211,978) | 245,211,978 | |||||||
TOTAL INVESTMENTS–99.8% (Cost $6,249,248,250) | 5,979,810,933 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–0.2% | 13,913,451 | |||||||
NET ASSETS–100.0% | $ | 5,993,724,384 | ||||||
Investment Abbreviation:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Growth and Income Fund
Table of Contents
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 3 in the Notes to Financial Statements for further information regarding fair value measurements.)
The following is a summary of the inputs used as of August 31, 2010 in valuing the Fund’s investments carried at value:
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Equity Securities | $ | 5,856,800,041 | $ | 123,010,892 | $ | — | $ | 5,979,810,933 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Growth and Income Fund
Table of Contents
Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $6,004,036,272) | $ | 5,734,598,955 | ||
Investments in affiliated money market funds, at value and cost | 245,211,978 | |||
Cash | 7 | |||
Receivables: | ||||
Dividends | 15,767,760 | |||
Fund shares sold | 11,042,239 | |||
Investments sold | 8,083,813 | |||
Other | 40,760 | |||
Total assets | 6,014,745,512 | |||
Liabilities: | ||||
Payables: | ||||
Fund shares repurchased | 11,168,540 | |||
Investments purchased | 5,163,262 | |||
Distributor and affiliates | 3,350,012 | |||
Accrued expenses | 1,339,314 | |||
Total liabilities | 21,021,128 | |||
Net assets | $ | 5,993,724,384 | ||
Net assets consist of: | ||||
Capital (par value of $0.01 per share with an unlimited number of shares authorized) | $ | 6,999,019,079 | ||
Accumulated undistributed net investment income | 8,255,246 | |||
Net unrealized appreciation (depreciation) | (269,437,317 | ) | ||
Accumulated net realized gain (loss) | (744,112,624 | ) | ||
Net assets | $ | 5,993,724,384 | ||
Maximum Offering Price Per Share: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share (Based on net assets of $4,122,778,944 and 256,657,837 shares of beneficial interest issued and outstanding) | $ | 16.06 | ||
Maximum sales charge (5.50% of offering price) | 0.93 | |||
Maximum offering price to public | $ | 16.99 | ||
Class B Shares: | ||||
Net asset value and offering price per share (Based on net assets of $231,193,427 and 14,510,963 shares of beneficial interest issued and outstanding) | $ | 15.93 | ||
Class C Shares: | ||||
Net asset value and offering price per share (Based on net assets of $269,050,645 and 16,909,408 shares of beneficial interest issued and outstanding) | $ | 15.91 | ||
Class R Shares: | ||||
Net asset value and offering price per share (Based on net assets of $122,188,293 and 7,605,182 shares of beneficial interest issued and outstanding) | $ | 16.07 | ||
Class Y Shares: | ||||
Net asset value and offering price per share (Based on net assets of $1,206,651,820 and 75,061,220 shares of beneficial interest issued and outstanding) | $ | 16.08 | ||
Class Institutional Share Class: | ||||
Net asset value and offering price per share (Based on net assets of $41,861,255 and 2,603,590 shares of beneficial interest issued and outstanding) | $ | 16.08 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
��
12 Invesco Van Kampen Growth and Income Fund
Table of Contents
Statements of Operations
For the period December 1, 2009 to August 31, 2010 and the year ended November 30, 2009
For the | For the | |||||||
nine months ended | year ended | |||||||
August 31, 2010 | November 30, 2009 | |||||||
Investment income: | ||||||||
Dividends (net of foreign withholding taxes of $819,343 and $2,934,120, respectively) | $ | 101,943,379 | $ | 136,511,729 | ||||
Dividends from affiliated money market fund | 77,418 | — | ||||||
Interest | 132,880 | 279,478 | ||||||
Total income | 102,153,677 | 136,791,207 | ||||||
Expenses: | ||||||||
Investment advisory fee | 17,301,866 | 19,805,045 | ||||||
Distribution fees | ||||||||
Class A | 8,450,523 | 10,032,309 | ||||||
Class B | 865,711 | 785,781 | ||||||
Class C | 2,310,574 | 2,793,398 | ||||||
Class R | 443,483 | 428,140 | ||||||
Transfer agent fees | 4,812,889 | 12,408,710 | ||||||
Reports to shareholders | 806,275 | 1,256,211 | ||||||
Administrative services fees | 610,475 | 758,416 | ||||||
Custody | 151,580 | 216,568 | ||||||
Trustees’ and officers’ fees and benefits | 149,532 | 135,133 | ||||||
Registration fees | 103,347 | 93,896 | ||||||
Professional fees | 24,667 | 398,160 | ||||||
Other | 101,922 | 169,806 | ||||||
Total expenses | 36,132,844 | 49,281,573 | ||||||
Expense reduction | 37,948 | -0- | ||||||
Net expenses | 36,094,896 | 49,281,573 | ||||||
Net investment income | 66,058,781 | 87,509,634 | ||||||
Realized and unrealized gain (loss): | ||||||||
Realized gain (loss): | ||||||||
Investments | 227,794,122 | (374,057,070 | ) | |||||
Futures | -0- | (19,090,379 | ) | |||||
Foreign currency transactions | -0- | (7,376 | ) | |||||
Net realized gain (loss) | 227,794,122 | (393,154,825 | ) | |||||
Unrealized appreciation (depreciation): | ||||||||
Beginning of the period | 385,853,867 | (1,110,593,070 | ) | |||||
End of the period | (269,437,317 | ) | 385,853,867 | |||||
Net unrealized appreciation (depreciation) during the period | (655,291,184 | ) | 1,496,446,937 | |||||
Net realized and unrealized gain (loss) | (427,497,062 | ) | 1,103,292,112 | |||||
Net increase (decrease) in net assets from operations | $ | (361,438,281 | ) | $ | 1,190,801,746 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Growth and Income Fund
Table of Contents
Statements of Changes in Net Assets
For the period December 1, 2009 to August 31, 2010 and the years ended November 30, 2009 and 2008
For the | For the | For the | ||||||||||
nine months ended | year ended | year ended | ||||||||||
August 31, 2010 | November 30, 2009 | November 30, 2008 | ||||||||||
From investment activities: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 66,058,781 | $ | 87,509,634 | $ | 154,058,675 | ||||||
Net realized gain (loss) | 227,794,122 | (393,154,825 | ) | (542,253,071 | ) | |||||||
Net unrealized appreciation (depreciation) during the period | (655,291,184 | ) | 1,496,446,937 | (3,069,256,509 | ) | |||||||
Change in net assets from operations | (361,438,281 | ) | 1,190,801,746 | (3,457,450,905 | ) | |||||||
Distributions from net investment income: | ||||||||||||
Class A Shares | (46,288,757 | ) | (70,464,829 | ) | (125,600,223 | ) | ||||||
Class B Shares | (2,797,501 | ) | (5,807,436 | ) | (12,128,555 | ) | ||||||
Class C Shares | (1,469,851 | ) | (3,052,534 | ) | (5,762,549 | ) | ||||||
Class R Shares | (966,152 | ) | (1,240,399 | ) | (2,068,289 | ) | ||||||
Class Y Shares | (14,834,399 | ) | (16,453,885 | ) | (24,032,254 | ) | ||||||
Institutional Class Shares | (7,403 | ) | -0- | -0- | ||||||||
(66,364,063 | ) | (97,019,083 | ) | (169,591,870 | ) | |||||||
Distributions from net realized gain: | ||||||||||||
Class A Shares | -0- | -0- | (326,751,506 | ) | ||||||||
Class B Shares | -0- | -0- | (32,723,684 | ) | ||||||||
Class C Shares | -0- | -0- | (24,928,611 | ) | ||||||||
Class R Shares | -0- | -0- | (5,894,328 | ) | ||||||||
Class Y Shares | -0- | -0- | (49,700,098 | ) | ||||||||
Institutional Class Shares | -0- | -0- | -0- | |||||||||
-0- | -0- | (439,998,227 | ) | |||||||||
Total distributions | (66,364,063 | ) | (97,019,083 | ) | (609,590,097 | ) | ||||||
Net change in net assets from investment activities | (427,802,344 | ) | 1,093,782,663 | (4,067,041,002 | ) | |||||||
From capital transactions: | ||||||||||||
Proceeds from shares sold | 1,333,775,097 | 1,294,667,962 | 1,744,714,197 | |||||||||
Net asset value of shares issued through dividend reinvestment | 60,574,362 | 88,094,309 | 560,884,166 | |||||||||
Cost of shares repurchased | (1,308,905,547 | ) | (2,145,677,561 | ) | (2,720,842,252 | ) | ||||||
Net change in net assets from capital transactions | 85,443,912 | (762,915,290 | ) | (415,243,889 | ) | |||||||
Total increase (decrease) in net assets | (342,358,432 | ) | 330,867,373 | (4,482,284,891 | ) | |||||||
Net assets: | ||||||||||||
Beginning of the period | 6,336,082,816 | 6,005,215,443 | 10,487,500,334 | |||||||||
End of the period (including accumulated undistributed net investment income of $8,255,246, $8,560,528, and $18,062,492 respectively) | $ | 5,993,724,384 | $ | 6,336,082,816 | $ | 6,005,215,443 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Growth and Income Fund
Table of Contents
Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class A shares | ||||||||||||||||||||||||
Nine months | ||||||||||||||||||||||||
ended | Year ended November 30, | |||||||||||||||||||||||
August 31, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 17.19 | $ | 13.87 | $ | 22.72 | $ | 22.62 | $ | 21.72 | $ | 19.55 | ||||||||||||
Net investment income(a) | 0.18 | 0.23 | 0.33 | 0.36 | 0.35 | 0.26 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.13 | ) | 3.34 | (7.86 | ) | 1.21 | 2.43 | 2.38 | ||||||||||||||||
Total from investment operations | (0.95 | ) | 3.57 | (7.53 | ) | 1.57 | 2.78 | 2.64 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.18 | 0.25 | 0.37 | 0.39 | 0.31 | 0.25 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.95 | 1.08 | 1.57 | 0.22 | ||||||||||||||||||
Total distributions | 0.18 | 0.25 | 1.32 | 1.47 | 1.88 | 0.47 | ||||||||||||||||||
Net asset value, end of the period | $ | 16.06 | $ | 17.19 | $ | 13.87 | $ | 22.72 | $ | 22.62 | $ | 21.72 | ||||||||||||
Total return | (5.60 | )%(b) | 26.24 | %(c) | (35.05 | )%(c) | 7.26 | %(c) | 13.76 | %(c) | 13.74 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 4,122.8 | $ | 4,496.2 | $ | 4,416.1 | $ | 7,793.4 | $ | 7,711.9 | $ | 6,439.4 | ||||||||||||
Ratio of expenses to average net assets | 0.74 | %(d) | 0.88 | % | 0.79 | % | 0.77 | % | 0.79 | % | 0.80 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.36 | %(d) | 1.58 | % | 1.78 | % | 1.58 | % | 1.66 | % | 1.27 | % | ||||||||||||
Portfolio turnover | 23 | %(e) | 51 | % | 42 | % | 26 | % | 30 | % | 43 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net assets value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of the Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $4,506,438. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class B shares | ||||||||||||||||||||||||
Nine months | ||||||||||||||||||||||||
ended | Year ended November 30, | |||||||||||||||||||||||
August 31, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 17.05 | $ | 13.76 | $ | 22.57 | $ | 22.47 | $ | 21.52 | $ | 19.37 | ||||||||||||
Net investment income(a) | 0.16 | 0.22 | 0.32 | 0.34 | 0.34 | 0.10 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.12 | ) | 3.32 | (7.81 | ) | 1.20 | 2.41 | 2.37 | ||||||||||||||||
Total from investment operations | (0.96 | ) | 3.54 | (7.49 | ) | 1.54 | 2.75 | 2.47 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.16 | 0.25 | 0.37 | 0.36 | 0.23 | 0.10 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.95 | 1.08 | 1.57 | 0.22 | ||||||||||||||||||
Total distributions | 0.16 | 0.25 | 1.32 | 1.44 | 1.80 | 0.32 | ||||||||||||||||||
Net asset value, end of the period | $ | 15.93 | $ | 17.05 | $ | 13.76 | $ | 22.57 | $ | 22.47 | $ | 21.52 | ||||||||||||
Total return | (5.69 | )%(b)(f) | 26.32 | %(c)(d) | (35.09 | )%(c)(d) | 7.18 | %(c)(d) | 13.70 | %(c)(d) | 12.93 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 231.2 | $ | 320.6 | $ | 365.3 | $ | 777.6 | $ | 869.9 | $ | 916.6 | ||||||||||||
Ratio of expenses to average net assets | 0.89 | %(e)(f) | 0.89 | %(d) | 0.84 | %(d) | 0.85 | %(d) | 0.84 | %(d) | 1.56 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.21 | %(e)(f) | 1.59 | %(d) | 1.72 | %(d) | 1.50 | %(d) | 1.60 | %(d) | 0.50 | % | ||||||||||||
Portfolio turnover | 23 | %(g) | 51 | % | 42 | % | 26 | % | 30 | % | 43 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net assets value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The total return, ratio of expenses to average net assets and ratio of net investment income to average net assets reflect actual 12b-1 fees of less than 1%. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $289,938. | |
(f) | The total return, ratio of expenses to average net assets and ratio of net investment income to average net assets reflect actual 12b-1 fees of 0.40%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Van Kampen Growth and Income Fund
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Financial Highlights—(continued)
Class C shares | ||||||||||||||||||||||||
Nine months | ||||||||||||||||||||||||
ended | Year ended November 30, | |||||||||||||||||||||||
August 31, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 17.03 | $ | 13.74 | $ | 22.53 | $ | 22.43 | $ | 21.56 | $ | 19.41 | ||||||||||||
Net investment income(a) | 0.08 | 0.12 | 0.20 | 0.20 | 0.19 | 0.10 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.12 | ) | 3.32 | (7.81 | ) | 1.21 | 2.41 | 2.37 | ||||||||||||||||
Total from investment operations | (1.04 | ) | 3.44 | (7.61 | ) | 1.41 | 2.60 | 2.47 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.08 | 0.15 | 0.23 | 0.23 | 0.16 | 0.10 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.95 | 1.08 | 1.57 | 0.22 | ||||||||||||||||||
Total distributions | 0.08 | 0.15 | 1.18 | 1.31 | 1.73 | 0.32 | ||||||||||||||||||
Net asset value, end of the period | $ | 15.91 | $ | 17.03 | $ | 13.74 | $ | 22.53 | $ | 22.43 | $ | 21.56 | ||||||||||||
Total return | (6.13 | )%(b) | 25.36 | %(c)(d) | (35.54 | )%(c)(d) | 6.53 | %(c)(d) | 12.88 | %(c) | 12.90 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 269.1 | $ | 316.3 | $ | 301.3 | $ | 591.0 | $ | 620.6 | $ | 557.2 | ||||||||||||
Ratio of expenses to average net assets | 1.49 | %(e) | 1.62 | %(d) | 1.51 | %(d) | 1.48 | %(d) | 1.54 | % | 1.56 | % | ||||||||||||
Ratio of net investment income to average net assets | 0.61 | %(e) | 0.84 | %(d) | 1.06 | %(d) | 0.87 | %(d) | 0.91 | % | 0.51 | % | ||||||||||||
Portfolio turnover | 23 | %(f) | 51 | % | 42 | % | 26 | % | 30 | % | 43 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net assets value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The total return, ratio of expenses to average net assets and ratio of net investment income to average net assets reflect actual 12b-1 fees of less than 1%. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $308,015. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class R shares | ||||||||||||||||||||||||
Nine months | ||||||||||||||||||||||||
ended | Year ended November 30, | |||||||||||||||||||||||
August 31, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 17.19 | $ | 13.87 | $ | 22.73 | $ | 22.62 | $ | 21.72 | $ | 19.55 | ||||||||||||
Net investment income(a) | 0.14 | 0.18 | 0.29 | 0.30 | 0.31 | 0.21 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.11 | ) | 3.35 | (7.88 | ) | 1.22 | 2.42 | 2.38 | ||||||||||||||||
Total from investment operations | (0.97 | ) | 3.53 | (7.59 | ) | 1.52 | 2.73 | 2.59 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.15 | 0.21 | 0.32 | 0.33 | 0.26 | 0.20 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.95 | 1.08 | 1.57 | 0.22 | ||||||||||||||||||
Total distributions | 0.15 | 0.21 | 1.27 | 1.41 | 1.83 | 0.42 | ||||||||||||||||||
Net asset value, end of the period | $ | 16.07 | $ | 17.19 | $ | 13.87 | $ | 22.73 | $ | 22.62 | $ | 21.72 | ||||||||||||
Total return | (5.72 | )%(b) | 26.00 | %(c) | (35.25 | )%(c) | 7.03 | %(c) | 13.48 | %(c) | 13.46 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 122.2 | $ | 107.4 | $ | 78.5 | $ | 140.2 | $ | 128.5 | $ | 45.1 | ||||||||||||
Ratio of expenses to average net assets | 0.99 | %(d) | 1.13 | % | 1.04 | % | 1.02 | % | 1.04 | % | 1.05 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.11 | %(d) | 1.29 | % | 1.53 | % | 1.33 | % | 1.46 | % | 1.02 | % | ||||||||||||
Portfolio turnover | 23 | %(e) | 51 | % | 42 | % | 26 | % | 30 | % | 43 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net assets value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period. These returns include combined Rule 12b-1 fees and service fees of up to 0.50% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $118,154. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class Y sharesˆ | ||||||||||||||||||||||||
Nine months | ||||||||||||||||||||||||
ended | Year ended November 30, | |||||||||||||||||||||||
August 31, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 17.21 | $ | 13.88 | $ | 22.74 | $ | 22.63 | $ | 21.73 | $ | 19.55 | ||||||||||||
Net investment income(a) | 0.21 | 0.26 | 0.38 | 0.41 | 0.41 | 0.28 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.13 | ) | 3.35 | (7.87 | ) | 1.23 | 2.43 | 2.42 | ||||||||||||||||
Total from investment operations | (0.92 | ) | 3.61 | (7.49 | ) | 1.64 | 2.84 | 2.70 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.21 | 0.28 | 0.42 | 0.45 | 0.37 | 0.30 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.95 | 1.08 | 1.57 | 0.22 | ||||||||||||||||||
Total distributions | 0.21 | 0.28 | 1.37 | 1.53 | 1.94 | 0.52 | ||||||||||||||||||
Net asset value, end of the period | $ | 16.08 | $ | 17.21 | $ | 13.88 | $ | 22.74 | $ | 22.63 | $ | 21.73 | ||||||||||||
Total return | (5.41 | )%(b) | 26.60 | %(c) | (34.90 | )%(c) | 7.57 | %(c) | 13.98 | %(c) | 14.11 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 1,206.7 | $ | 1,095.7 | $ | 844.1 | $ | 1,185.3 | $ | 881.2 | $ | 781.6 | ||||||||||||
Ratio of expenses to average net assets | 0.49 | %(d) | 0.63 | % | 0.54 | % | 0.52 | % | 0.54 | % | 0.57 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.61 | %(d) | 1.81 | % | 2.04 | % | 1.83 | % | 1.92 | % | 1.41 | % | ||||||||||||
Portfolio turnover | 23 | %(e) | 51 | % | 42 | % | 26 | % | 30 | % | 43 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net assets value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,246,567. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
ˆ | On June 1, 2010, the Fund’s former Class I shares were reorganized into Class Y shares. |
Institutional Class | ||||
June 1, 2010 | ||||
(Commencement of | ||||
operations) to | ||||
August 31, 2010 | ||||
Net asset value, beginning of the period | $ | 16.48 | ||
Net investment income(a) | 0.05 | |||
Net realized and unrealized gain (loss) | (0.39 | ) | ||
Total from investment operations | (0.34 | ) | ||
Less: | ||||
Distributions from net investment income | 0.06 | |||
Net asset value, end of the period | $ | 16.08 | ||
Total return(b) | (2.05 | )% | ||
Net assets at end of the period (in millions) | $ | 41.9 | ||
Ratio of expenses to average net assets | 0.45 | %(c) | ||
Ratio of net investment income to average net assets | 1.31 | %(c) | ||
Portfolio turnover(d) | 23 | % | ||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net assets value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $26,846. | |
(d) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Growth and Income Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from November 30 to August 31.
Prior to June 1, 2010, the Fund operated as Van Kampen Growth and Income Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010 (The “Reorganization Date”) through the transfer of all its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C, Class R and Class I shares received Class A, Class B, Class C, Class R and Class Y shares, respectively, of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is income and long-term growth of capital.
The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. |
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Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a |
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futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | ||
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $150 million | 0 | .50% | ||
Next $100 million | 0 | .45% | ||
Next $100 million | 0 | .40% | ||
Over $350 million | 0 | .35% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $11,691,295 and $19,805,045 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets for the period December 1, 2009 to May 31, 2010 and for the year ended November 30, 2009, respectively.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares to 0.88%, 1.63%, 1.63%, 1.13%, 0.63% and 0.63% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the period ended August 31, 2010, the Adviser waived advisory fees of $37,948.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $191,440 and $393,900 to VKII for the period December 1, 2009 to May 31, 2010 and the year ended November 30, 2009, respectively. For the period ended August 31, 2010 and the year ended November 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended August 31, 2010, IIS was paid $2,321,990 for providing such
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services. Prior to the Reorganization, the Acquired Fund paid $1,165,909 and $2,576,300 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent, for the period December 1, 2009 to May 31, 2010 and for the year ended November 30, 2009, respectively. For the period ended August 31, 2010 and the year ended November 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares, Class C shares and Class R shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets, up to 1.00% each of Class B and Class C average daily net assets and up to 0.50% of Class R average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B, Class C and Class R shares. Pursuant to such agreements, the Acquired Fund paid $8,430,568 and $14,039,628 to VKFI for the period December 1, 2009 to May 31, 2010 and the year ended November 30, 2009, respectively.
For the period ended August 31, 2010 and the year ended November 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $72,122 in front-end sales commissions from the sale of Class A shares and $254, $70,416 and $4,785 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period December 1, 2009 to May 31, 2010, VKFI retained $312,596 in front-end sales commissions from the sale of Class A shares and $154,696, for CDSC imposed on redemptions by shareholders. For the year ended November 30, 2009, VKFI retained $638,500 in front-end sales commissions from the sale of Class A shares and $397,300, for CDSC imposed on redemptions by shareholders.
The Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of Van Kampen, totaling $59,370 and $252,320 for the period December 1, 2009 to May 31, 2010 and the year ended November 31, 2009, respectively.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — Prices are determined using quoted prices in an active market for identical assets.
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended August 31, 2010, the Fund paid legal fees of $0 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. For the period December 1, 2009 to May 31, 2010, the Acquired Fund recognized expenses of $42,545 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund. For the year ended November 30, 2009, the Acquired Fund recognized expenses of $359,300 representing legal services provided by Skadden.
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NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Nine Months Ended August 31, 2010 and the Years Ended November 30, 2009 and 2008:
August 31, | November 30, | November 30, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Ordinary income | $ | 66,364,063 | $ | 97,019,083 | $ | 254,363,995 | ||||||
Long-term capital gain | -0- | -0- | 355,226,102 | |||||||||
Total distributions | $ | 66,364,063 | $ | 97,019,083 | $ | 609,590,097 | ||||||
Tax Components of Net Assets at Period-End:
August 31, | ||||
2010 | ||||
Undistributed ordinary income | $ | 8,255,246 | ||
Net unrealized appreciation — investments | (281,556,800 | ) | ||
Capital loss carryforward | (731,993,141 | ) | ||
Shares of beneficial interest | 6,999,019,079 | |||
Total net assets | $ | 5,993,724,384 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $226,072,730 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 731,993,141 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund from December 1, 2009 to August 31, 2010 was $1,471,849,433 and $1,449,771,240, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 288,204,656 | ||
Aggregate unrealized (depreciation) of investment securities | (569,761,456 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (281,556,800 | ) | |
Cost of investments for tax purposes is $6,261,367,733. |
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NOTE 8—Share Information
For the | For the | For the | ||||||||||||||||||||||
nine months ended | year ended | year ended | ||||||||||||||||||||||
August 31, 2010(a) | November 30, 2009 | November 30, 2008 | ||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
Sales: | ||||||||||||||||||||||||
Class A | 40,694,820(b | ) | $ | 707,176,618(b | ) | 57,927,682 | $ | 807,430,785 | 57,825,716 | $ | 1,072,657,142 | |||||||||||||
Class B | 934,228 | 16,167,953 | 2,148,011 | 29,667,060 | 2,086,418 | 38,343,527 | ||||||||||||||||||
Class C | 1,252,711 | 21,780,200 | 2,037,857 | 28,300,443 | 2,193,348 | 39,846,518 | ||||||||||||||||||
Class R | 2,423,181 | 42,296,238 | 2,343,353 | 33,092,151 | 1,987,366 | 37,408,947 | ||||||||||||||||||
Class Y | 29,182,798 | 503,102,992 | 27,202,880 | 396,177,523 | 30,477,708 | 556,458,063 | ||||||||||||||||||
Institutional Class | 2,638,781 | 43,251,096 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Total sales | 77,126,519 | $ | 1,333,775,097 | 91,659,783 | $ | 1,294,667,962 | 94,570,556 | $ | 1,744,714,197 | |||||||||||||||
Dividend reinvestment: | ||||||||||||||||||||||||
Class A | 2,544,181 | $ | 43,649,414 | 4,949,122 | $ | 66,221,754 | 20,369,092 | $ | 426,114,201 | |||||||||||||||
Class B | 154,168 | 2,633,398 | 411,733 | 5,438,004 | 1,992,302 | 41,462,405 | ||||||||||||||||||
Class C | 69,351 | 1,190,861 | 192,064 | 2,487,495 | 1,203,882 | 25,238,374 | ||||||||||||||||||
Class R | 50,681 | 870,627 | 82,308 | 1,099,777 | 342,385 | 7,176,954 | ||||||||||||||||||
Class Y | 714,655 | 12,230,024 | 956,393 | 12,847,279 | 2,927,711 | 60,892,232 | ||||||||||||||||||
Institutional Class | 3 | 38 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Total dividend reinvestment | 3,533,039 | $ | 60,574,362 | 6,591,620 | $ | 88,094,309 | 26,835,372 | $ | 560,884,166 | |||||||||||||||
Repurchases: | ||||||||||||||||||||||||
Class A | (48,110,313 | ) | $ | (830,378,096 | ) | (119,809,171 | ) | $ | (1,551,828,446 | ) | (102,710,778 | ) | $ | (1,871,333,672 | ) | |||||||||
Class B | (5,374,410 | )(b) | (92,459,113 | )(b) | (10,314,145 | ) | (141,793,426 | ) | (11,976,603 | ) | (217,887,951 | ) | ||||||||||||
Class C | (2,985,220 | ) | (51,124,902 | ) | (5,586,391 | ) | (76,216,147 | ) | (7,702,168 | ) | (139,886,709 | ) | ||||||||||||
Class R | (1,113,115 | ) | (19,245,650 | ) | (1,842,190 | ) | (26,169,909 | ) | (2,838,704 | ) | (51,093,200 | ) | ||||||||||||
Class Y | (18,516,612 | ) | (315,105,691 | ) | (25,304,022 | ) | (349,669,633 | ) | (24,704,188 | ) | (440,640,720 | ) | ||||||||||||
Institutional Class | (35,194 | ) | (592,095 | ) | -0- | -0- | -0- | -0- | ||||||||||||||||
Total repurchases | (76,134,864 | ) | $ | (1,308,905,547 | ) | (162,855,919 | ) | $ | (2,145,677,561 | ) | (149,932,441 | ) | $ | (2,720,842,252 | ) | |||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 21% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. In addition, 1% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are mutual funds that are advised by Invesco. | |
(b) | Includes automatic conversion of 1,668,282 Class B shares into 1,654,934 Class A shares at a value of $28,323,179. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 9—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Van Kampen Growth and Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Growth and Income Fund (formerly known as Van Kampen Growth and Income Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended November 30, 2009 and prior were audited by other independent auditors whose report dated January 22, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. With the exception of the actual ending account values and expenses of the Institutional Class shares, the example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010, through August 31, 2010. The actual ending account value and expenses of the Institutional Class shares in the example below are based on an investment of $1,000 invested as of close of business June 1, 2010 (commencement date) and held through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period (as of close of business June 1, 2010 through August 31, 2010 for the Institutional Class shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Institutional Class shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period 3 | Ratio 4 | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 929.27 | $ | 3.89 | $ | 1,021.17 | $ | 4.08 | 0.80 | % | ||||||||||||||||||
B | 1,000.00 | 928.40 | 4.67 | 1,020.37 | 4.89 | 0.96 | ||||||||||||||||||||||||
C | 1,000.00 | 926.18 | 7.53 | 1,017.39 | 7.88 | 1.55 | ||||||||||||||||||||||||
R | 1,000.00 | 928.66 | 5.10 | 1,019.91 | 5.35 | 1.05 | ||||||||||||||||||||||||
Y | 1,000.00 | 931.06 | 2.68 | 1,022.43 | 2.80 | 0.55 | ||||||||||||||||||||||||
Institutional | 1,000.00 | 979.50 | 1.11 | 1,022.94 | 2.29 | 0.45 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010, through August 31, 2010 (as of close of business June 1, 2010 through August 31, 2010 for the Institutional Class shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. For the Institutional Class shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 91 (as of close of business June 1, 2010 through August 31, 2010)/365. Because the Institutional Class shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. |
3 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in the Institutional Class shares of the Fund and other funds because such data is based on a full six month period. |
4 | The Class B expense ratio reflects actual 12b-1 fees of less than 1%. |
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Approval of Investment Advisory and Sub-Advisory Agreements |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen Growth and Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers, the Affiliated Sub-Advisers and the MS Sub-Adviser under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed the information provided differently than another Trustee.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
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services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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Invesco mailing information
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Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
VK-GRI-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Van Kampen Pennsylvania
Tax Free Income Fund
Tax Free Income Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
13 | Financial Statements | |
16 | Financial Highlights | |
19 | Notes to Financial Statements | |
26 | Auditor’s Report | |
27 | Fund Expenses | |
28 | Approval of Investment Advisory and Sub-Advisory Agreements | |
30 | Tax Information | |
31 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have Specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Van Kampen Pennsylvania Tax Free Income Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Van Kampen Pennsylvania Tax Free Income Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
All share classes of Invesco Van Kampen Pennsylvania Tax Free Income Fund at net asset value (NAV) posted positive returns during the 11-month reporting period ended August 31, 2010. The Fund’s Class A shares at NAV outperformed both the Fund’s broad market benchmark, the Barclays Capital Municipal Bond Index, and the Fund’s style-Specific index, the Barclays Capital Pennsylvania Municipal Index. The Fund’s focus on the long-end of the yield curve, and overweight positions in lower quality securities as well as non-rated securities were the main contributors to relative outperformance versus the Barclays Capital Pennsylvania Municipal Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 9/30/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 6.74 | % | ||
Class B Shares | 6.27 | |||
Class C Shares | 6.01 | |||
Class Y Shares* | 6.87 | |||
Barclays Capital Municipal Bond Index▼ (Broad Market Index) | 5.97 | |||
Barclays Capital Pennsylvania Municipal Index■ (Style-Specific Index) | 5.96 | |||
▼ | Lipper Inc.: ■ Invesco, Barclays Capital |
* | Share class incepted during reporting period. For detailed explanation of Fund performance, see page 7. |
How we invest
Our investment objective is to provide only Pennsylvania investors with a high level of current income exempt from federal and Pennsylvania state income taxes and, where possible under local law, local income and personal property taxes, through investments primarily in a varied portfolio of medium- and lower grade municipal securities.
We seek to invest primarily in medium- and lower grade securities; however, at times the market conditions in the Pennsylvania municipal markets may be such that the Fund may invest in higher grade securities. The Fund’s investment in medium- and lower grade securities involves special risks as compared to investment in higher grade securities. Lower grade securities are commonly
referred to as junk bonds and involve greater risks than investments in higher grade securities. We generally do not purchase securities that are in default or rated in categories lower than B- by Standard and Poor’s (S&P) or B3 by Moody’s Investors Service, Inc. (Moody’s) or unrated securities of comparable quality. Under normal market conditions, the Fund may invest up to 20% of its total assets in municipal securities that are subject to the federal alternative minimum tax.
We actively manage the Fund’s portfolio and adjust the average maturity of portfolio investments based upon expectations about the direction of interest rates and other economic factors. We select securities which we believe offer higher yields with reasonable credit risk considered in relation to
the investment policies of the Fund. In selecting securities for investment, we use our research capabilities to assess potential investments and consider a number of factors, including general market and economic conditions and credit, interest rate and prepayment risks.
Portfolio securities are typically sold when our assessment of any of these factors materially change. At times, the market conditions in the Pennsylvania municipal securities markets may be such that we may invest in higher grade securities. These investments may lessen the decline in the NAV of the Fund but also may affect the amount of current income since yields on higher grade securities are usually lower than yields on medium- or lower grade securities. As a result, we will not necessarily invest in the highest yielding Pennsylvania municipal securities permitted by our investment policies depending on market conditions or if we determine that market risks or credit risks associated with such investments would subject the Fund’s portfolio to undue risk.
Market conditions and your Fund
Market conditions during the 11-month period covered in this report were influenced by two broad themes: private sector recovery and concerns over sovereign creditworthiness. In the U.S. and most of the developed world, a gradual and somewhat lackluster recovery continued, with central banks keeping interest rates at extremely low levels and with few of them withdrawing their quantitative easing measures. This has helped private sector companies improve their balance sheets and earnings following the global financial crisis that began to dissipate in early 2009. Recently, however, investor skepticism of global governments’
Portfolio Composition†
By credit quality, based on total investments
AAA | 17.5 | % | ||
AA | 13.9 | |||
A | 19.1 | |||
BBB | 19.5 | |||
BB | 0.3 | |||
Non-Rated | 29.7 |
Top 5 Sectors*
1. Hospital | 19.2 | % | ||
2. Higher Education | 12.1 | |||
3. Life Care | 9.5 | |||
4. General Purpose | 8.1 | |||
5. Public Buildings | 8.1 |
Total Net Assets | $157.3 million | |
Total Number of Holdings* | 120 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
† | Source: Standard and Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “Non-Rated” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Standard and Poor’s rating methodology, please visit www.standardandpoors.com and select ‘Understanding Ratings’ under Rating Resources on the homepage. |
4 | Invesco Van Kampen Pennsylvania Tax Free Income Fund |
Table of Contents
abilities to retire huge amounts of debt without affecting economic growth rates caused sovereign debt distress (especially for Greece and other southern euro zone countries) and became a focal point of investor concern in the first half of 2010.
In the U.S., economic recovery was present, although uneven and possibly slowing, as stubbornly high unemployment continued to weigh on the U.S. economy.1 Real gross domestic product (GDP), the broadest measure of overall U.S. economic activity, increased at an annual rate of 1.7% in the second quarter of 2010.1 In the first quarter, real GDP increased 3.7%.1 The U.S. Federal Reserve (the Fed) maintained a very accommodative monetary policy throughout the period, with the federal funds target rate unchanged in its range of zero to 0.25%.2 The Fed recently described its view of the U.S. economy: “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”2 Consequently, it was widely expected that the Fed would continue to keep rates low for an extended period.
Sector performance was driven by quality spread tightening, largely a result of continued flows into the municipal market combined with less tax-exempt issuance. As a result, BBB-rated and lower credit quality sectors outperformed. Fund inflows continued to remain strong after an exceptional 2009. In addition, year-to-date issuance through the reporting period was about 1.5% ahead of last year’s pace: $261.0 billion versus 257.3 billion.4 However, approximately 30% of supply since the beginning of the year was in the form of taxable Build America Bonds.4
Historically, the state of Pennsylvania has a record of good financial management and budgetary balances over the years with a well-controlled debt position.
With the slowdown in the economy, the state faces challenges due to its below average income and a continuing loss of manufacturing jobs. State officials have said they will not meet payments due December 15 on $35.0 million in incinerator bonds.4
Pennsylvania was also dealing with dwindling economic stimulus funds from the federal government, forcing the state to find additional areas to cut expenses. We will continue to monitor its economic health and look for opportunities in more stable sectors within the state.
The Fund generated positive absolute and relative returns for the reporting period. In terms of yield curve positioning, a focus on the long-end of the curve contributed to returns relative to the Barclays Capital Pennsylvania Municipal Index, as this part of the curve generated the highest returns over the period.
As discussed earlier, during the reporting period, lower rated tax-exempt bonds experienced greater price increases relative to higher quality issues. An overweight exposure to BBB and non-rated bonds was a positive contributor to relative and absolute returns.
At a sector level, the Fund’s underweight in the tax-supported sector, Specifically state general obligation bonds, was the primary detractor on a relative basis. At the industry level, we were overweight in the life care sector, which contributed to positive relative returns. However, we continued to monitor the health care sector in light of recent health care reform, and we continued to diversify out of the sector by selling weaker issuers on analyst recommendations, including swapping deep discount hospital bonds for new issue higher coupon bonds and university revenue bonds.
Our overweight exposure to industrial development revenue/pollution control revenue bonds also contributed to relative performance during the period.
As noted earlier, the Fund seeks to invest primarily in medium- and lower grade securities; however, at times, conditions in the Pennsylvania municipal markets may be such that the Fund may invest in higher grade securities. During the reporting period, we invested in higher grade securities because of a relatively low supply of lower and medium-grade securities.
We use inverse floating rate securities in Invesco Pennsylvania Tax Free Income Fund to help manage duration, yield curve exposure and credit exposure, and to potentially enhance yield. Over the reporting period, the exposure to inverse floaters within the fund contributed positively to Fund return.
Thank you for investing in Invesco Van Kampen Pennsylvania Tax Free Income Fund and for sharing our long-term investment horizon.
1 Bureau of Economic Analysis
2 U.S. Federal Reserve
3 Morningstar Direct
4 Barclays Capital
2 U.S. Federal Reserve
3 Morningstar Direct
4 Barclays Capital
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Mark Paris
Portfolio manager, is manager of Invesco Van Kampen Pennsylvania Tax Free Income Fund. Mr. Paris joined Invesco in 2010. He earned a B.B.A. in finance from the City University of New York.
Julius Williams
Portfolio manager, is manager of Invesco Van Kampen Pennsylvania Tax Free Income Fund. Mr. Williams joined Invesco in 2010. Mr. Williams earned a B.A. in economics and sociology and an M.E. in educational psychology from the University of Virginia.
Robert Wimmel
Portfolio manager, is manager of Invesco Van Kampen Pennsylvania Tax Free Income Fund. Mr. Wimmel joined Invesco in 2010. Mr. Wimmel earned a B.A. in anthropology from the University of Cincinnati and an M.A. in economics from the University of Illinois, Chicago.
5 | Invesco Van Kampen Pennsylvania Tax Free Income Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/87, Fund data from 5/1/87
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not.
Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the
one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 | Invesco Van Kampen Pennsylvania Tax Free Income Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable
sales charges
sales charges
Class A Shares | ||||
Inception (5/1/87) | 5.96 | % | ||
10 Years | 3.79 | |||
5 Years | 2.15 | |||
1 Year | 6.89 | |||
Class B Shares | ||||
Inception (5/3/93) | 4.22 | % | ||
10 Years | 3.69 | |||
5 Years | 2.23 | |||
1 Year | 6.74 | |||
Class C Shares | ||||
Inception (8/13/93) | 3.67 | % | ||
10 Years | 3.55 | |||
5 Years | 2.38 | |||
1 Year | 10.38 | |||
Class Y Shares | ||||
10 Years | 4.31 | % | ||
5 Years | 3.18 | |||
1 Year | 12.37 |
Effective June 1, 2010, Class A, Class B and Class C shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B and Class C shares, respectively, of Invesco Van Kampen Pennsylvania Tax Free Income Fund. Returns shown above for Class A, Class B and Class C shares are blended returns of the predecessor fund and Invesco Van Kampen Pennsylvania Tax Free Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
Class Y shares incepted on June 1, 2010. Performance shown prior to that date is that of the predecessor fund’s Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||
Inception (5/1/87) | 5.85 | % | ||
10 Years | 3.76 | |||
5 Years | 1.59 | |||
1 Year | 7.90 | |||
Class B Shares | ||||
Inception (5/3/93) | 4.07 | % | ||
10 Years | 3.63 | |||
5 Years | 1.65 | |||
1 Year | 7.84 | |||
Class C Shares | ||||
Inception (8/13/93) | 3.51 | % | ||
10 Years | 3.51 | |||
5 Years | 1.82 | |||
1 Year | 11.40 | |||
Class Y Shares | ||||
10 Years | 4.27 | % | ||
5 Years | 2.59 | |||
1 Year | 13.28 |
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.18%, 1.93%, 1.93% and 0.93%, respectively. The expense ratios presented above may vary from the expense ratios
presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 4.75% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 4% at the time of purchase to 0% at the beginning of the seventh year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
7 | Invesco Van Kampen Pennsylvania Tax Free Income Fund |
Table of Contents
Invesco Van Kampen Pennsylvania Tax Free Income Fund’s investment objective is to provide only Pennsylvania investors with a high level of current income exempt from federal and Pennsylvania state income taxes and, where possible under local law, local income and personal property taxes, through investment primarily in a varied portfolio of medium- and lower-grade municipal securities.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | Under normal market conditions, the Fund invests primarily in municipal securities. The yields of municipal securities may move differently and adversely compared to the yields of the overall debt securities markets. The Fund may invest up to 20% of its total assets in municipal securities subject to the federal alternative minimum tax. There could be changes in applicable tax laws or tax treatments that adversely affect the current federal or state tax status of municipal securities. | |
n | The Fund is more susceptible to political, economic, regulatory or other factors affecting issuers of Pennsylvania municipal securities than a fund that does not limit its investments to such issuers. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. |
n | Credit risk refers to an issuer’s ability to make timely payments of interest and principal. Credit risk should be low for the Fund because it invests substantially all of its assets in insured municipal securities. In the event that the insurers of the Fund’s insured municipal securities are downgraded in their claims-paying abilities by a nationally recognized statistical rating organization, the Fund would be subject to potential market value declines and increased credit risk on the municipal securities insured by such insurer. | |
n | The income you receive from the Fund is based primarily on prevailing interest rates, which can vary widely over the short-and long-term. If interest rates drop, your income from the Fund may drop as well. | |
n | If interest rates fall, it is possible that issuers of callable securities held by the Fund will call or prepay their securities before their maturity dates. In this event, the proceeds from the called securities would most likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Funds’ income and distributions to shareholders and termination of any conversion option on convertible securities. |
About indexes used in this report
n | The Barclays Capital Municipal Bond Index is an unmanaged index considered representative of the tax-exempt bond market. | |
n | The Barclays Capital Pennsylvania Municipal Index tracks the performance of Pennsylvania issued municipal bonds rated at least Baa or BBB by Moody’s or S&P, respectively, with maturities greater than 2 years. |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | VKMPX | |
Class B Shares | VKPAX | |
Class C Shares | VKPCX | |
Class Y Shares | VKPYX |
8 | Invesco Van Kampen Pennsylvania Tax Free Income Fund |
Table of Contents
Schedule of Investments
August 31, 2010
Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Municipal Bonds–100.1% | ||||||||||||||||
Pennsylvania–93.1% | ||||||||||||||||
Allegheny Cnty, PA Higher Ed Bldg Auth Univ Rev Duquesne Univ Proj Rfdg (AMBAC Insd) | 5.500 | % | 03/01/20 | $ | 1,750 | $ | 1,994,212 | |||||||||
Allegheny Cnty, PA Higher Ed Bldg Auth Univ Rev Robert Morris Univ, Ser A | 6.000 | % | 10/15/38 | 1,000 | 1,032,330 | |||||||||||
Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Sys, Ser A | 5.375 | % | 11/15/40 | 750 | 573,345 | |||||||||||
Allegheny Cnty, PA Hosp Dev Auth Rev OH Vly Gen Hosp Proj, Ser A | 5.000 | % | 04/01/25 | 1,600 | 1,508,912 | |||||||||||
Allegheny Cnty, PA Hosp Dev Auth Rev Univ Pittsburgh Med | 5.625 | % | 08/15/39 | 1,250 | 1,315,950 | |||||||||||
Allegheny Cnty, PA Indl Dev Auth Lease Rev (AMT) | 6.625 | % | 09/01/24 | 980 | 884,107 | |||||||||||
Allegheny Cnty, PA Indl Dev Auth Lease Rev Residential Res Inc Proj | 5.100 | % | 09/01/26 | 980 | 928,658 | |||||||||||
Allegheny Cnty, PA Port Auth Transn (NATL Insd) | 5.500 | % | 03/01/16 | 1,000 | 1,028,860 | |||||||||||
Allegheny Cnty, PA Port Auth Transn (NATL Insd) | 5.500 | % | 03/01/17 | 1,000 | 1,028,860 | |||||||||||
Allegheny Cnty, PA Redev Auth Pittsburgh Mills Proj | 5.600 | % | 07/01/23 | 1,220 | 1,186,206 | |||||||||||
Allegheny Cnty, PA Residential Fin Auth Mtg Rev Single Family, Ser TT (GNMA Collateralized) (AMT) | 5.000 | % | 05/01/35 | 1,155 | 1,178,319 | |||||||||||
Allegheny Cnty, PA, Ser C-61 (AGL Insd) | 5.000 | % | 12/01/33 | 1,000 | 1,075,810 | |||||||||||
Allegheny Valley, PA Sch Dist, Ser A (NATL Insd) | 5.000 | % | 11/01/28 | 1,500 | 1,573,395 | |||||||||||
Beaver Cnty, PA (AGM Insd) | 5.550 | % | 11/15/31 | 1,390 | 1,537,646 | |||||||||||
Berks Cnty, PA Indl Dev Auth First Mtg Rev One Douglassville Proj Rfdg, Ser A (AMT) | 6.125 | % | 11/01/34 | 490 | 427,006 | |||||||||||
Berks Cnty, PA Muni Auth College Albright College Proj | 5.500 | % | 10/01/18 | 1,895 | 1,899,700 | |||||||||||
Bethlehem, PA Area Sch Dist (AGM Insd) | 5.250 | % | 01/15/26 | 1,000 | 1,112,970 | |||||||||||
Bucks Cnty, PA Indl Dev Auth Ann’s Choice Inc Fac, Ser A | 5.900 | % | 01/01/27 | 1,000 | 1,000,240 | |||||||||||
Bucks Cnty, PA Indl Dev Auth Ann’s Choice Inc Fac, Ser A | 6.125 | % | 01/01/25 | 1,500 | 1,520,325 | |||||||||||
Bucks Cnty, PA Indl Dev Auth Rev Lutheran Cmnty Telford Ctr | 5.750 | % | 01/01/37 | 2,000 | 1,700,980 | |||||||||||
Centre Cnty, PA Hosp Auth Rev Hosp Mt Nittany Med Ctr Proj (AGL Insd) | 6.125 | % | 11/15/39 | 1,000 | 1,058,650 | |||||||||||
Chartiers Valley, PA Indl & Coml Dev Auth First Mtg Rev Asbury Hlth Ctr Proj Rfdg | 5.250 | % | 12/01/15 | 500 | 504,405 | |||||||||||
Chartiers Valley, PA Indl & Coml Dev Auth First Mtg Rev Asbury Hlth Ctr Proj Rfdg | 5.750 | % | 12/01/22 | 900 | 912,150 | |||||||||||
Coatesville, PA Sch Dist (AGM Insd) | 5.000 | % | 08/15/30 | 850 | 941,681 | |||||||||||
Cumberland Cnty, PA Muni Auth Rev Diakon Lutheran Ministries Proj | 5.000 | % | 01/01/36 | 1,000 | 921,760 | |||||||||||
Cumberland Cnty, PA Muni Auth Rev Messiah Vlg Proj, Ser A | 5.625 | % | 07/01/28 | 1,000 | 967,680 | |||||||||||
Dauphin Cnty, PA Gen Auth Hlth Sys Rev Pinnacle Hlth Sys Proj, Ser A | 6.000 | % | 06/01/36 | 2,215 | 2,375,100 | |||||||||||
Dauphin Cnty, PA Gen Auth Rev Office & Pkg Riverfront Office | 6.000 | % | 01/01/25 | 1,200 | 1,014,576 | |||||||||||
Delaware Cnty, PA Auth College Rev Cabrini College (Radian Insd) | 5.750 | % | 07/01/23 | 220 | 220,222 | |||||||||||
Delaware Cnty, PA Auth College Rev Haverford College | 5.000 | % | 11/15/40 | 500 | 544,690 | |||||||||||
Delaware Cnty, PA Auth College Rev Neumann College | 6.250 | % | 10/01/38 | 500 | 542,845 | |||||||||||
Delaware Cnty, PA Auth College Rev Neumann College Rfdg | 6.000 | % | 10/01/31 | 1,500 | 1,519,020 | |||||||||||
Delaware Cnty, PA Indl Dev Auth Rev Wtr Fac Aqua PA Inc Proj, Ser A (NATL Insd) (AMT) | 5.000 | % | 11/01/38 | 1,500 | 1,528,260 | |||||||||||
Delaware Cnty, PA Indl Dev Auth Rev Wtr Fac Philadelphia Subn Wtr (AMBAC Insd) (AMT) | 5.350 | % | 10/01/31 | 2,500 | 2,546,925 | |||||||||||
Delaware Riv Port Auth PA & NJ Rev, Ser D | 5.000 | % | 01/01/40 | 1,000 | 1,048,590 | |||||||||||
Delaware Vly, PA Regl Fin Auth Loc Govt Rev | 5.750 | % | 07/01/17 | 3,535 | 4,035,238 | |||||||||||
Delaware Vly, PA Regl Fin Auth Loc Govt Rev | 5.750 | % | 07/01/32 | 2,000 | 2,271,300 | |||||||||||
Erie, PA Higher Ed Bldg Auth College Rev Mercyhurst College | 5.500 | % | 03/15/38 | 500 | 514,705 | |||||||||||
Erie, PA Higher Ed Bldg Auth College Rev Mercyhurst College Proj Rfdg, Ser B | 5.000 | % | 03/15/23 | 1,000 | 1,031,010 | |||||||||||
Greensburg Salem, PA Sch Dist Rfdg (NATL Insd) | 5.375 | % | 09/15/17 | 1,415 | 1,538,006 | |||||||||||
Harrisburg, PA Auth Wtr Rev Rfdg | 5.250 | % | 07/15/31 | 1,000 | 1,023,560 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Pennsylvania Tax Free Income Fund
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Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Pennsylvania–(continued) | ||||||||||||||||
Lancaster Cnty, PA Hosp Auth Rev Hlth Ctr Saint Annes Home | 6.600 | % | 04/01/24 | $ | 1,000 | $ | 990,570 | |||||||||
Lebanon Cnty, PA Hlth Fac Pleasant View Retirement, Ser A | 5.300 | % | 12/15/26 | 1,000 | 966,060 | |||||||||||
Lehigh Cnty, PA Gen Purp Auth Rev Hosp Saint Lukes Bethlehem (Prerefunded @ 08/15/13) | 5.250 | % | 08/15/23 | 1,980 | 2,254,646 | |||||||||||
Lehigh Cnty, PA Gen Purp Auth Rev Kidspeace Oblig Group Rfdg | 6.000 | % | 11/01/23 | 1,760 | 1,356,590 | |||||||||||
Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev Lifepath Inc Proj | 6.300 | % | 06/01/28 | 1,085 | 879,859 | |||||||||||
Lycoming Cnty, PA Auth Hlth Sys Rev Susquehanna Hlth Sys Proj, Ser A | 5.750 | % | 07/01/39 | 1,250 | 1,295,412 | |||||||||||
Mercer Cnty, PA (NATL Insd) | 5.500 | % | 10/01/17 | 1,095 | 1,152,356 | |||||||||||
Mifflin Cnty, PA Hosp Auth (Radian Insd) (Prerefunded @ 01/01/11) | 6.200 | % | 07/01/25 | 1,500 | 1,544,670 | |||||||||||
Monroe Cnty, PA Hosp Auth Rev Hosp Pocono Med Ctr | 5.125 | % | 01/01/37 | 1,500 | 1,511,580 | |||||||||||
Monroe Cnty, PA Hosp Auth Rev Hosp Pocono Med Ctr (Prerefunded @ 01/01/14) | 6.000 | % | 01/01/43 | 1,000 | 1,174,850 | |||||||||||
Montgomery Cnty, PA Higher Ed & Hlth Auth Hosp Rev Abington Mem Hosp, Ser A | 5.125 | % | 06/01/32 | 2,100 | 2,119,929 | |||||||||||
Montgomery Cnty, PA Higher Ed & Hlth Auth Rev Hlthcare Holy Redeemer Hlth, Ser A (AMBAC Insd) | 5.250 | % | 10/01/17 | 1,000 | 1,000,470 | |||||||||||
Montgomery Cnty, PA Indl Dev Auth Retirement Cmnty Rev Acts Retirement Life Cmnty, Ser A-1 | 6.250 | % | 11/15/29 | 1,000 | 1,082,790 | |||||||||||
Montgomery Cnty, PA Indl Dev Auth Rev Mtg Whitemarsh Cmnty Proj | 7.000 | % | 02/01/36 | 500 | 467,150 | |||||||||||
Montgomery Cnty, PA Indl Dev Auth Rev Mtg Whitemarsh Cont Care Proj | 6.125 | % | 02/01/28 | 1,100 | 969,716 | |||||||||||
Montgomery Cnty, PA Indl Dev Auth Rev Mtg Whitemarsh Cont Care Proj | 6.250 | % | 02/01/35 | 880 | 750,112 | |||||||||||
Mount Lebanon, PA Hosp Auth Saint Clair Mem Hosp, Ser A | 5.625 | % | 07/01/32 | 2,000 | 2,022,880 | |||||||||||
Northampton Cnty, PA Gen Purp Auth Hosp Rev Saint Lukes Hosp Proj, Ser A | 5.500 | % | 08/15/35 | 1,000 | 1,029,160 | |||||||||||
Northampton Cnty, PA Gen Purp Auth Hosp Rev Saint Lukes Hosp Proj, Ser C(a) | 4.500 | % | 08/15/32 | 500 | 518,705 | |||||||||||
Northampton Cnty, PA Gen Purp Auth Rev Higher Ed Lehigh Univ | 5.500 | % | 11/15/33 | 1,000 | 1,123,760 | |||||||||||
Pennsylvania Econ Dev Fin Auth Exempt Fac Rev Reliant Energy, Ser B (AMT) | 6.750 | % | 12/01/36 | 1,250 | 1,296,575 | |||||||||||
Pennsylvania Econ Dev Fin Auth Exempt Fac Rev Var Allegheny Energy Supply Co | 7.000 | % | 07/15/39 | 1,830 | 2,098,022 | |||||||||||
Pennsylvania Econ Dev Fin Auth Res Recovery Rev Colver Proj Rfdg, Ser G (AMT) | 5.125 | % | 12/01/15 | 800 | 774,208 | |||||||||||
Pennsylvania Econ Dev Fin Auth Sew Sludge Disp Rev Philadelphia Bio Solids Fac | 6.250 | % | 01/01/32 | 1,000 | 1,082,930 | |||||||||||
Pennsylvania Econ Dev Fin Auth Solid Waste Disp Rev Waste Mgmt Inc Proj, Ser A (AMT) | 5.100 | % | 10/01/27 | 1,150 | 1,164,605 | |||||||||||
Pennsylvania St Higher Ed Fac Auth Rev Edinboro Univ | 6.000 | % | 07/01/43 | 500 | 521,065 | |||||||||||
Pennsylvania St Higher Ed Fac Auth Rev La Salle Univ | 5.500 | % | 05/01/34 | 1,500 | 1,514,295 | |||||||||||
Pennsylvania St Higher Ed Fac Auth Rev Thomas Jefferson Univ | 5.375 | % | 01/01/25 | 645 | 670,884 | |||||||||||
Pennsylvania St Higher Ed Fac Auth Rev Thomas Jefferson Univ | 5.500 | % | 01/01/19 | 355 | 376,531 | |||||||||||
Pennsylvania St Higher Ed Fac Auth Rev Trustees Univ PA, Ser C(b) | 5.000 | % | 07/15/38 | 4,700 | 4,921,887 | |||||||||||
Pennsylvania St Higher Ed Fac Auth Rev UPMC Hlth Sys, Ser A (Prerefunded @ 01/15/11) | 6.000 | % | 01/15/31 | 365 | 376,476 | |||||||||||
Pennsylvania St Tpk Commn Tpk Rev Cap Apprec Motor License Spl, Ser A-2(c) | 0.000/5.500 | % | 12/01/34 | 750 | 592,125 | |||||||||||
Pennsylvania St Tpk Commn Tpk Rev Cap Apprec Sub, Ser E(c) | 0.000/6.375 | % | 12/01/38 | 1,435 | 1,091,246 | |||||||||||
Pennsylvania St Tpk Commn Tpk Rev Conv Cap Apprec Sub, Ser C (AGM Insd)(c) | 0.000/6.250 | % | 06/01/33 | 2,000 | 1,626,340 | |||||||||||
Pennsylvania St Tpk Commn Tpk Rev Spl Motor License Fd, Ser A-1 | 5.000 | % | 12/01/38 | 500 | 535,715 | |||||||||||
Pennsylvania St Tpk Commn Tpk Rev Subser B-1 | 5.500 | % | 06/01/33 | 1,000 | 1,077,630 | |||||||||||
Philadelphia, PA Arpt Rev, Ser A (NATL Insd) (AMT) | 5.000 | % | 06/15/25 | 1,000 | 1,025,370 | |||||||||||
Philadelphia, PA Auth For Indl Dev Rev Coml Dev Rfdg (AMT) | 7.750 | % | 12/01/17 | 2,505 | 2,508,457 | |||||||||||
Philadelphia, PA Auth For Indl Dev Rev Mast Charter Sch | 6.000 | % | 08/01/35 | 700 | 725,900 | |||||||||||
Philadelphia, PA Auth For Indl Dev Rev Please Touch Museum Proj | 5.250 | % | 09/01/31 | 2,750 | 2,505,580 | |||||||||||
Philadelphia, PA Auth For Indl Dev Rev Please Touch Museum Proj | 5.250 | % | 09/01/36 | 1,000 | 883,960 | |||||||||||
Philadelphia, PA Auth For Indl Dev Rev, Ser A | 5.500 | % | 09/15/37 | 1,235 | 1,138,942 | |||||||||||
Philadelphia, PA Hosp & Higher Ed Fac Auth Rev Chester JHS, Ser B | 5.000 | % | 05/15/40 | 850 | 872,295 | |||||||||||
Philadelphia, PA Muni Auth Rev Muni Svcs Bldg Lease Cap Apprec (AGM Insd) | * | 03/15/11 | 3,750 | 3,729,150 | ||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Pennsylvania Tax Free Income Fund
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Par | ||||||||||||||||
Amount | ||||||||||||||||
Coupon | Maturity | (000) | Value | |||||||||||||
Pennsylvania–(continued) | ||||||||||||||||
Philadelphia, PA Muni Auth Rev Muni Svcs Bldg Lease Cap Apprec (AGM Insd) | * | 03/15/12 | $ | 3,775 | $ | 3,700,859 | ||||||||||
Philadelphia, PA Muni Auth Rev Muni Svcs Bldg Lease Cap Apprec (AGM Insd) | * | 03/15/13 | 4,400 | 4,229,588 | ||||||||||||
Philadelphia, PA Rfdg, Ser A (AGL Insd) | 5.500 | % | 08/01/24 | 2,000 | 2,306,540 | |||||||||||
Philadelphia, PA Sch Dist Rfdg, Ser D | 5.000 | % | 09/01/18 | 1,490 | 1,708,538 | |||||||||||
Philadelphia, PA Sch Dist, Ser E (BHAC Insd) | 5.125 | % | 09/01/23 | 1,500 | 1,707,150 | |||||||||||
Philadelphia, PA Wtr & Wastewtr Rev, Ser C (AGM Insd) | 5.000 | % | 08/01/35 | 1,250 | 1,324,138 | |||||||||||
Pittsburgh & Allegheny Cnty, PA Sports & Exhib Auth Regl Asset Dist Ref (AGM Insd)(d) | 5.000 | % | 02/01/31 | 1,000 | 1,060,140 | |||||||||||
Saint Mary Hosp Auth PA Hlth Sys Rev, Ser B (Prerefunded @ 11/15/14) | 5.375 | % | 11/15/34 | 2,250 | 2,642,985 | |||||||||||
State Pub Sch Bldg Auth PA Sch Rev Harrisburg Sch Dist Proj, Ser A (AGL Insd) | 5.000 | % | 11/15/33 | 1,000 | 1,071,710 | |||||||||||
Sto-Rox Sch Dist PA (NATL Insd) (Prerefunded @ 12/15/10) | 5.800 | % | 06/15/30 | 2,000 | 2,032,060 | |||||||||||
Susquehanna Area Regl Arpt Auth PA Arpt Sys Rev, Ser A (AMBAC Insd) (AMT) | 5.500 | % | 01/01/19 | 2,500 | 2,573,900 | |||||||||||
Susquehanna Area Regl Arpt Auth PA Arpt Sys Rev, Ser D | 5.375 | % | 01/01/18 | 2,350 | 2,201,527 | |||||||||||
Upper Saint Clair Twp PA Sch Dist (AGM Insd) | 5.375 | % | 07/15/17 | 1,200 | 1,297,404 | |||||||||||
Washington Cnty, PA Indl Dev Auth College Rev Washington Jefferson College | 5.250 | % | 11/01/30 | 500 | 539,680 | |||||||||||
Washington Cnty, PA Redev Auth Rev Victory Ctr Proj Tanger, Ser A(a) | 5.450 | % | 07/01/35 | 1,495 | 1,382,142 | |||||||||||
Washington Cnty, PA, Ser A (AMBAC Insd) | 5.125 | % | 09/01/27 | 2,150 | 2,199,794 | |||||||||||
Washington Cnty, PA, Ser A (AMBAC Insd) (Prerefunded @ 09/01/12) | 5.125 | % | 09/01/27 | 350 | 383,264 | |||||||||||
West Shore, PA Area Hosp Auth Holy Spirit Hosp Proj | 6.250 | % | 01/01/32 | 2,045 | 2,063,998 | |||||||||||
Westmoreland Cnty, PA Indl Dev Auth Rev Retirement Cmnty Redstone, Ser A | 5.750 | % | 01/01/26 | 2,500 | 2,356,450 | |||||||||||
Westmoreland Cnty, PA Indl Dev Auth Rev Retirement Cmnty Redstone, Ser A | 5.875 | % | 01/01/32 | 900 | 803,169 | |||||||||||
146,474,693 | ||||||||||||||||
Guam–1.1% | ||||||||||||||||
Guam Govt Ltd Oblig Rev Sect 30, Ser A | 5.750 | % | 12/01/34 | 1,250 | 1,317,700 | |||||||||||
Guam Pwr Auth Rev, Ser A | 5.500 | % | 10/01/40 | 410 | 412,091 | |||||||||||
1,729,791 | ||||||||||||||||
Puerto Rico–4.1% | ||||||||||||||||
Puerto Rico Comwlth Infrastructure Fin Auth Spl Tax Rev Rfdg, Ser C (AMBAC Insd) | 5.500 | % | 07/01/27 | 600 | 664,992 | |||||||||||
Puerto Rico Elec Pwr Auth Rev, Ser WW | 5.250 | % | 07/01/33 | 1,500 | 1,573,485 | |||||||||||
Puerto Rico Elec Pwr Auth Rev, Ser WW | 5.500 | % | 07/01/21 | 1,000 | 1,130,460 | |||||||||||
Puerto Rico Sales Tax Fin Corp Sales Tax Rev Cap Apprec, Ser A | * | 08/01/34 | 3,500 | 839,195 | ||||||||||||
Puerto Rico Sales Tax Fin Corp Sales Tax Rev Conv Cap Apprec, Ser A(c) | 0.000/6.250 | % | 08/01/33 | 1,065 | 747,363 | |||||||||||
Puerto Rico Sales Tax Fin Corp Sales Tax Rev First Sub, Ser A | 5.375 | % | 08/01/39 | 470 | 496,461 | |||||||||||
Puerto Rico Sales Tax Fin Corp Sales Tax Rev First Sub, Ser A (Prerefunded @ 08/01/11)(a) | 5.000 | % | 08/01/39 | 1,000 | 1,043,700 | |||||||||||
6,495,656 | ||||||||||||||||
Virgin Islands–1.8% | ||||||||||||||||
Virgin Islands Pub Fin Auth Rev Matching Fd Ln Diago, Ser A | 6.625 | % | 10/01/29 | 750 | 850,305 | |||||||||||
Virgin Islands Pub Fin Auth Rev Sr Lien/Cap Proj, Ser A-1 | 5.000 | % | 10/01/39 | 500 | 506,905 | |||||||||||
Virgin Islands Wtr & Pwr Auth Elec Sys Rev, Ser A | 5.000 | % | 07/01/25 | 1,335 | 1,399,414 | |||||||||||
2,756,624 | ||||||||||||||||
Total Long-Term Investments–100.1% (Cost $152,328,598) | 157,456,764 | |||||||||||||||
Total Short-Term Investments–2.8% (Cost $4,500,000) | 4,500,000 | |||||||||||||||
TOTAL INVESTMENTS–102.9% (Cost $156,828,598) | 161,956,764 | |||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Pennsylvania Tax Free Income Fund
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Value | ||||||||||||||||
Liability for Floating Rate Note Obligations Related to Securities Held–(2.0%) | ||||||||||||||||
(Cost ($3,135,000)) | ||||||||||||||||
$(3,135) Notes with an interest rate of 0.30% at August 31, 2010 and a contractual maturity of collateral of 2038 (See Note 1(K) in the Notes to Financial Statements)(e) | $ | (3,135,000 | ) | |||||||||||||
Total Net Investments–100.9% (Cost $153,693,598) | 158,821,764 | |||||||||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS–(0.9%) | (1,483,191 | ) | ||||||||||||||
NET ASSETS–-100.0% | $ | 157,338,573 | ||||||||||||||
Investment Abbreviations:
AGL | – Assured Guaranty Ltd. | |
AGM | – Assured Guaranty Municipal Corp. | |
AMBAC | – AMBAC Indemnity Corp. | |
AMT | – Alternative Minimum Tax | |
BHAC | – Berkshire Hathaway Assurance Corp. | |
GNMA | – Government National Mortgage Association | |
NATL | – National Public Finance Guarantee Corp. | |
Radian | – Radian Asset Assurance |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
* | Zero coupon bond | |
(a) | Variable Rate Coupon | |
(b) | Underlying security related to Inverse Floaters entered into by the Fund. See Note 1(K) in the Notes to Financial Statements for further information. | |
(c) | Security is a “step-up” bond where the coupon increases or steps up at a predetermined date. | |
(d) | Security purchased on a when-issued or delayed delivery basis. | |
(e) | Floating rate note obligations related to securities held. The interest rate shown reflects the rate in effect at August 31, 2010. At August 31, 2010, Fund investments with a value of $4,921,887 are held by the Dealer Trusts and serve as collateral for the $3,135,000 in floating rate note and dealer trust obligations outstanding at that date. Contractual maturities of the floating rate notes and interest rates in effect at August 31, 2010 are presented on the Schedule of Investments. |
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 3 in the Notes to Financial Statements for further
The following is a summary of the inputs used as of August 31, 2010 in valuing the Fund’s investments carried at value.
Level 2 | Level 3 | |||||||||||||||
Level 1 | Other Significant | Significant | ||||||||||||||
Investments | Quoted Prices | Observable Inputs | Unobservable Inputs | Total | ||||||||||||
Municipal Securities | $ | — | $ | 161,956,764 | $ | — | $ | 161,956,764 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Van Kampen Pennsylvania Tax Free Income Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $156,828,598) | $ | 161,956,764 | ||
Receivables: | ||||
Interest | 1,917,631 | |||
Fund shares sold | 68,980 | |||
Investments sold | 20,000 | |||
Other | 4,477 | |||
Total assets | 163,967,852 | |||
Liabilities: | ||||
Payables: | ||||
Floating Rate Note Obligations | 3,135,000 | |||
Investments purchased | 1,039,530 | |||
Fund shares repurchased | 396,693 | |||
Income distributions | 125,869 | |||
Distributor and affiliates | 55,199 | |||
Custodian bank | 1,754,354 | |||
Accrued expenses | 122,634 | |||
Total liabilities | 6,629,279 | |||
Net Assets | $ | 157,338,573 | ||
Net assets consist of: | ||||
Capital (Par value of $0.01 per share with an unlimited number of shares authorized) | $ | 159,217,593 | ||
Net unrealized appreciation | 5,128,166 | |||
Accumulated undistributed net investment income | 76,017 | |||
Accumulated net realized gain (loss) | (7,083,203 | ) | ||
Net assets | $ | 157,338,573 | ||
Maximum offering price per share: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share (Based on net assets of $141,406,278 and 8,680,178 shares of beneficial interest issued and outstanding) | $ | 16.29 | ||
Maximum sales charge (4.75% of offering price) | 0.81 | |||
Maximum offering price to public | $ | 17.10 | ||
Class B Shares: | ||||
Net asset value and offering price per share (Based on net assets of $4,681,773 and 288,427 shares of beneficial interest issued and outstanding) | $ | 16.23 | ||
Class C Shares: | ||||
Net asset value and offering price per share (Based on net assets of $11,083,349 and 679,336 shares of beneficial interest issued and outstanding) | $ | 16.31 | ||
Class Y Shares: | ||||
Net asset value and offering price per share (Based on net assets of $167,173 and 10,259 shares of beneficial interest issued and outstanding) | $ | 16.30 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Pennsylvania Tax Free Income Fund
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Statements of Operations
For the period October 1, 2009 to August 31, 2010 and the year ended September 30, 2009
For the eleven | For the year | |||||||
months ended | ended | |||||||
August 31, | September 30, | |||||||
2010 | 2009 | |||||||
Investment income: | ||||||||
Interest | $ | 8,000,454 | $ | 8,693,724 | ||||
Expenses: | ||||||||
Investment advisory fee | 844,272 | 832,639 | ||||||
Distribution fees | ||||||||
Class A | 319,002 | 319,965 | ||||||
Class B | 34,060 | 33,878 | ||||||
Class C | 82,926 | 49,494 | ||||||
Interest, credit line and residual trust expenses | 70,540 | 109,547 | ||||||
Professional fees | 106,283 | 100,308 | ||||||
Transfer agent fees | 76,088 | 95,816 | ||||||
Administrative services fees | 61,985 | 77,361 | ||||||
Reports to shareholders | 51,028 | 53,096 | ||||||
Trustees’ and officers’ fees and benefits | 21,544 | 31,187 | ||||||
Custody | 11,270 | 19,869 | ||||||
Registration fees | -0- | 5,912 | ||||||
Other | 13,058 | 11,419 | ||||||
Total expenses | 1,692,056 | 1,740,491 | ||||||
Less Credits earned on cash balances | -0- | 573 | ||||||
Net expenses | 1,692,056 | 1,739,918 | ||||||
Net investment income | 6,308,398 | 6,953,806 | ||||||
Realized and unrealized gain (loss): | ||||||||
Net realized gain (loss) | 911,918 | (1,875,518 | ) | |||||
Unrealized appreciation (depreciation): | ||||||||
Beginning of the period | 2,328,522 | (10,580,062 | ) | |||||
End of the period: | ||||||||
Investments | 5,128,166 | 2,328,522 | ||||||
Net unrealized appreciation during the period | 2,799,644 | 12,908,584 | ||||||
Net realized and unrealized gain | 3,711,562 | 11,033,066 | ||||||
Net increase in net assets from operations | $ | 10,019,960 | $ | 17,986,872 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Pennsylvania Tax Free Income Fund
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Statements of Changes in Net Assets
For the period October 1, 2009 to August 31, 2010 and the years ended September 30, 2009 and 2008
For the eleven | For the year | For the year | ||||||||||
months ended | ended | ended | ||||||||||
August 31, | September 30, | September 30, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
From investment activities: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 6,308,398 | $ | 6,953,806 | $ | 7,183,844 | ||||||
Net realized gain (loss) | 911,918 | (1,875,518 | ) | (6,164,946 | ) | |||||||
Net unrealized appreciation (depreciation) during the period | 2,799,644 | 12,908,584 | (14,375,306 | ) | ||||||||
Change in net assets from operations | 10,019,960 | 17,986,872 | (13,356,408 | ) | ||||||||
Distributions from net investment income: | ||||||||||||
Class A Shares | (5,990,320 | ) | (6,597,361 | ) | (6,857,677 | ) | ||||||
Class B Shares | (198,854 | ) | (267,886 | ) | (296,282 | ) | ||||||
Class C Shares | (325,653 | ) | (216,276 | ) | (175,088 | ) | ||||||
Class Y Shares | (1,373 | ) | -0- | -0- | ||||||||
(6,516,200 | ) | (7,081,523 | ) | (7,329,047 | ) | |||||||
Distributions from net realized gain: | ||||||||||||
Class A Shares | -0- | -0- | (365,399 | ) | ||||||||
Class B Shares | -0- | -0- | (17,631 | ) | ||||||||
Class C Shares | -0- | -0- | (10,755 | ) | ||||||||
-0- | -0- | (393,785 | ) | |||||||||
Total distributions | (6,516,200 | ) | (7,081,523 | ) | (7,722,832 | ) | ||||||
Net change in net assets from investment activities | 3,503,760 | 10,905,349 | (21,079,240 | ) | ||||||||
From capital transactions: | ||||||||||||
Proceeds from shares sold | 12,467,823 | 12,344,838 | 10,966,021 | |||||||||
Net asset value of shares issued through dividend reinvestment | 5,054,700 | 5,420,894 | 5,810,015 | |||||||||
Cost of shares repurchased | (17,017,762 | ) | (23,483,031 | ) | (21,806,266 | ) | ||||||
Net change in net assets from capital transactions | 504,761 | (5,717,299 | ) | (5,030,230 | ) | |||||||
Total increase (decrease) in net assets | 4,008,521 | 5,188,050 | (26,109,470 | ) | ||||||||
Net assets: | ||||||||||||
Beginning of the period | 153,330,052 | 148,142,002 | 174,251,472 | |||||||||
End of the period (including accumulated undistributed net investment income of $76,017, $275,568 and $398,635, respectively) | $ | 157,338,573 | $ | 153,330,052 | $ | 148,142,002 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class A Shares | ||||||||||||||||||||||||
Eleven | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
August 31, | Year ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 15.93 | $ | 14.76 | $ | 16.84 | $ | 17.43 | $ | 17.44 | $ | 17.41 | ||||||||||||
Net investment income | 0.66 | (a) | 0.73 | (a) | 0.72 | (a) | 0.70 | (a) | 0.69 | (a) | 0.70 | |||||||||||||
Net realized and unrealized gain (loss) | 0.38 | 1.18 | (2.03 | ) | (0.53 | ) | 0.04 | 0.04 | ||||||||||||||||
Total from investment operations | 1.04 | 1.91 | (1.31 | ) | 0.17 | 0.73 | 0.74 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.68 | 0.74 | 0.73 | 0.68 | 0.68 | 0.71 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.04 | 0.08 | 0.06 | -0- | ||||||||||||||||||
Total distributions | 0.68 | 0.74 | 0.77 | 0.76 | 0.74 | 0.71 | ||||||||||||||||||
Net asset value, end of the period | $ | 16.29 | $ | 15.93 | $ | 14.76 | $ | 16.84 | $ | 17.43 | $ | 17.44 | ||||||||||||
Total return | 6.74 | %(b) | 13.60 | %(c) | (8.02 | )%(c) | 0.95 | %(c) | 4.39 | %(c) | 4.30 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 141.4 | $ | 141.2 | $ | 137.4 | $ | 160.5 | $ | 170.1 | $ | 176.3 | ||||||||||||
Ratio of expenses to average net assets | 1.14 | %(d) | 1.21 | % | 1.32 | % | 1.44 | % | 1.06 | % | 1.09 | % | ||||||||||||
Ratio of net investment income to average net assets | 4.54 | %(d) | 5.05 | % | 4.43 | % | 4.08 | % | 4.02 | % | 3.98 | % | ||||||||||||
Portfolio turnover(e) | 15 | % | 17 | % | 25 | % | 25 | % | 28 | % | 24 | % | ||||||||||||
Supplemental ratio: | ||||||||||||||||||||||||
Ratio of expenses to average net assets (excluding interest and residual trust expenses) | 1.10 | %(d) | 1.13 | % | 1.06 | % | 1.08 | % | 1.06 | % | 1.09 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 4.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $139,251. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for period less than a year. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class B Shares | ||||||||||||||||||||||||
Eleven | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
August 31, | Year ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 15.89 | $ | 14.72 | $ | 16.78 | $ | 17.38 | $ | 17.38 | $ | 17.36 | ||||||||||||
Net investment income | 0.59 | (a) | 0.68 | (a) | 0.63 | (a) | 0.57 | (a) | 0.57 | (a) | 0.55 | |||||||||||||
Net realized and unrealized gain (loss) | 0.38 | 1.18 | (2.01 | ) | (0.54 | ) | 0.05 | 0.05 | ||||||||||||||||
Total from investment operations | 0.97 | 1.86 | (1.38 | ) | 0.03 | 0.62 | 0.60 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.63 | 0.69 | 0.64 | 0.55 | 0.56 | 0.58 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.04 | 0.08 | 0.06 | -0- | ||||||||||||||||||
Total distributions | 0.63 | 0.69 | 0.68 | 0.63 | 0.62 | 0.58 | ||||||||||||||||||
Net asset value, end of the period | $ | 16.23 | $ | 15.89 | $ | 14.72 | $ | 16.78 | $ | 17.38 | $ | 17.38 | ||||||||||||
Total return | 6.27 | %(b)(d) | 13.21 | %(c)(f) | (8.46 | )%(c)(f) | 0.20 | %(c) | 3.63 | %(c) | 3.50 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 4.7 | $ | 5.4 | $ | 6.2 | $ | 8.9 | $ | 12.2 | $ | 15.8 | ||||||||||||
Ratio of expenses to average net assets | 1.64 | %(d)(e) | 1.57 | %(f) | 1.81 | %(f) | 2.19 | % | 1.81 | % | 1.83 | % | ||||||||||||
Ratio of net investment income to average net assets | 4.05 | %(d)(e) | 4.70 | %(f) | 3.94 | %(f) | 3.32 | % | 3.26 | % | 3.23 | % | ||||||||||||
Portfolio turnover(g) | 15 | % | 17 | % | 25 | % | 25 | % | 28 | % | 24 | % | ||||||||||||
Supplemental ratio: | ||||||||||||||||||||||||
Ratio of expenses to average net assets (excluding interest and residual trust expenses) | 1.60 | %(d)(e) | 1.49 | %(f) | 1.55 | %(f) | 1.83 | % | 1.81 | % | 1.83 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Des not include sale charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of 0.74%. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $5,003. | |
(f) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for period less than a year. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class C Shares | ||||||||||||||||||||||||
Eleven | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
August 31, | Year ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 15.95 | $ | 14.78 | $ | 16.86 | $ | 17.45 | $ | 17.45 | $ | 17.41 | ||||||||||||
Net investment income | 0.55 | (a) | 0.62 | (a) | 0.59 | (a) | 0.58 | (a) | 0.57 | (a) | 0.58 | |||||||||||||
Net realized and unrealized gain (loss) | 0.38 | 1.18 | (2.02 | ) | (0.54 | ) | 0.05 | 0.04 | ||||||||||||||||
Total from investment operations | 0.93 | 1.80 | (1.43 | ) | 0.04 | 0.62 | 0.62 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.57 | 0.63 | 0.61 | 0.55 | 0.56 | 0.58 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | 0.04 | 0.08 | 0.06 | -0- | ||||||||||||||||||
Total distributions | 0.57 | 0.63 | 0.65 | 0.63 | 0.62 | 0.58 | ||||||||||||||||||
Net asset value, end of the period | $ | 16.31 | $ | 15.95 | $ | 14.78 | $ | 16.86 | $ | 17.45 | $ | 17.45 | ||||||||||||
Total return | 6.01 | %(b) | 12.74 | %(c) | (8.71 | )%(c) | 0.19 | %(c) | 3.68 | %(c)(e) | 3.60 | %(c)(e) | ||||||||||||
Net assets at end of the period (in millions) | $ | 11.1 | $ | 6.8 | $ | 4.5 | $ | 4.8 | $ | 5.2 | $ | 5.2 | ||||||||||||
Ratio of expenses to average net assets | 1.89 | %(d) | 1.96 | % | 2.07 | % | 2.19 | % | 1.80 | %(e) | 1.75 | %(e) | ||||||||||||
Ratio of net investment income to average net assets | 3.79 | %(d) | 4.28 | % | 3.68 | % | 3.33 | % | 3.27 | %(e) | 3.31 | %(e) | ||||||||||||
Portfolio turnover(f) | 15 | % | 17 | % | 25 | % | 25 | % | 28 | % | 24 | % | ||||||||||||
Supplemental ratio: | ||||||||||||||||||||||||
Ratio of expenses to average net assets (excluding interest and residual trust expenses) | 1.85 | %(d) | 1.89 | % | 1.81 | % | 1.83 | % | 1.80 | %(e) | 1.75 | %(e) | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Des not include sale charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $9,035. | |
(e) | The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for period less than a year. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class Y Shares | ||||
June 1, 2010 | ||||
(Commencement of | ||||
operations) to | ||||
August 31, | ||||
2010 | ||||
Net asset value, beginning of the period | $ | 15.94 | ||
Net investment income(a) | 0.19 | |||
Net realized and unrealized gain (loss) | 0.36 | |||
Total from investment operations | 0.55 | |||
Less: | ||||
Distributions from net investment income | 0.19 | |||
Distributions from net realized gain | -0- | |||
Total distributions | 0.19 | |||
Net asset value, end of the period | $ | 16.30 | ||
Total return(b) | 3.49 | % | ||
Net assets at end of the period (in millions) | $ | 0.2 | ||
Ratio of expenses to average net assets(c) | 0.85 | % | ||
Ratio of net investment income to average net assets(c) | 4.75 | % | ||
Portfolio turnover(d) | 15 | % | ||
Supplemental ratio: | ||||
Ratio of expenses to average net assets (excluding interest and residual trust expenses)(c) | 0.81 | % | ||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Des not include sale charges and is not annualized for periods less than one year, if applicable. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $90. | |
(d) | Portfolio turnover is calculated at the fund level and is not annualized for period less than a year. |
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Pennsylvania Tax Free Income Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from September 30 to August 31.
Prior to June 1, 2010, the Fund operated as Van Kampen Pennsylvania Tax Free Income Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010, (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B and Class C shares received Class A, Class B and Class C shares, respectively, of the Fund.
The Fund’s investment objective is to provide only Pennsylvania investors with a high level of current income exempt from federal and Pennsylvania state income taxes and, where possible under local law, local income and personal property taxes, through investment primarily in a varied portfolio of medium- and lower-grade municipal securities.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
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Securities are fair valued using an evaluated quote provided by an independent pricing service approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Securities with a demand feature exercisable within one to seven days are valued at par. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and principal payments. | ||
Securities for which market quotations either are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Some of the factors which may be considered in determining fair value are fundamental analytical data relating to the investment; the nature and duration of any restrictions on transferability or disposition; trading in similar securities by the same issuer or comparable companies; relevant political, economic or issuer specific news; and other relevant factors under the circumstances. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable and tax-exempt earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
In addition, the Fund intends to invest in such municipal securities to allow it to qualify to pay shareholders “exempt-interest dividends”, as defined in the Internal Revenue Code. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these |
20 Invesco Van Kampen Pennsylvania Tax Free Income Fund
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arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | ||
I. | Securities Purchased on a When-Issued and Delayed Delivery Basis — The Fund may purchase and sell interests in portfolio securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Fund actually takes delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities prior to the settlement date. | |
J. | Other Risks — The value of, payment of interest on, repayment of principal for and the ability to sell a municipal security may be affected by constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives and the economics of the regions in which the issuers are located. | |
Since, many municipal securities are issued to finance similar projects, especially those relating to education, health care, transportation and utilities, conditions in those sectors can affect the overall municipal securities market and a Fund’s investments in municipal securities. | ||
There is some risk that a portion or all of the interest received from certain tax-free municipal securities could become taxable as a result of determinations by the Internal Revenue Service. | ||
K. | Floating Rate Obligations Related to Securities Held — The Fund enters into transactions in which it transfers to Special Purpose Trusts established by a Broker Dealer (“Dealer Trusts”) fixed rate bonds in exchange for cash and residual interests in the Dealer Trusts’ assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interest in the bonds. The Fund may enter into shortfall agreements with the Dealer Trusts which commit the Fund to pay the Dealer Trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the Dealer Trusts to the Fund, thereby collapsing the Dealer Trusts. The Fund accounts for the transfer of bonds to the Dealer Trusts as secured borrowings, with the securities transferred remaining in the Fund’s investment assets, and the related floating rate notes reflected as Fund liabilities under the caption “Floating rate note obligations” on the Statement of Assets and Liabilities. The Fund records the interest income from the fixed rate bonds under the caption “Interest” and records the expenses related to floating rate obligations and any administrative expenses of the Dealer Trusts under the caption “Interest, credit line and residual trust expenses” on the Statement of Operations. The floating rate notes issued by the Dealer Trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the Dealer Trusts for redemption at par at each reset date. The average floating rate notes outstanding and average annual interest and fee rate related to residual interests during the eleven months ended August 31, 2010 were $6,780,831 and 0.91%, respectively. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .60% | ||
Over $500 million | 0 | .50% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $610,016 and $832,639 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets for the period October 1, 2009 to May 31, 2010 and for the year ended September 30, 2009, respectively.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C and Class Y shares to 1.13%, 1.88%, 1.88% and 0.88% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waivers to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under the expense limitation.
For the period ended August 31, 2010, the Adviser did not waive advisory fees under this agreement.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the
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Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $16,248 and $25,244 to VKII for the period October 1, 2009 to May 31, 2010 and the year ended September 30, 2009, respectively. For the period ended August 31, 2010 and the year ended September 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
Prior to the Reorganization, under a legal services agreement, VKII provided legal services to the Acquired Fund. Pursuant to such agreement, the Acquired Fund paid $20,754 and $21,826 to VKII for the period October 1, 2009 to May 31, 2010 and the year ended September 30, 2009, respectively.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended August 31, 2010, IIS was paid $20,980 for providing such services. Prior to the Reorganization, the Acquired Fund paid $36,681 and $62,820 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent, for the period October 1, 2009 to May 31, 2010 and for the year ended September 30, 2009, respectively. For the period ended August 31, 2010 and the year ended September 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares and Class C shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $313,284 and $403,337 to VKFI for the period October 1, 2009 to May 31, 2010 and the year ended September 30, 2009, respectively.
For the period ended August 31, 2010 and the year ended September 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $2,950 in front-end sales commissions from the sale of Class A shares and $0, $495 and $868 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period October 1, 2009 to May 31, 2010, VKFI retained $15,075 in front-end sales commissions from the sale of Class A shares and $1,704, for CDSC imposed on redemptions by shareholders. For the year ended September 30, 2009, VKFI retained $21,900 in front-end sales commissions from the sale of Class A shares and $11,400, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the period October 1, 2009 to May 31, 2010 and the year ended August 31, 2010, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $0 and $573, respectively.
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NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended August 31, 2010, the Fund paid legal fees of $0 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. For the period October 1, 2009 to May 31, 2010, the Acquired Fund recognized expenses of $3,676 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund. For the year ended September 30, 2009, the Acquired Fund recognized expenses of $17,241 representing legal services provided by Skadden.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Eleven Months Ended August 31, 2010 and the Years Ended September 30, 2009 and 2008:
August 31, 2010 | September 30, 2009 | September 30, 2008 | ||||||||||
Ordinary income | $ | 1,034 | $ | 2,133 | $ | 2,084 | ||||||
Tax-exempt income | 6,515,166 | 7,080,623 | 7,345,532 | |||||||||
Long-term capital gain | -0- | -0- | 393,785 | |||||||||
Total distributions | $ | 6,516,200 | $ | 7,082,756 | $ | 7,741,401 | ||||||
Tax Components of Net Assets at Period-End:
August 31, 2010 | ||||
Undistributed ordinary income | $ | 85,409 | ||
Net unrealized appreciation — investments | 5,063,632 | |||
Net unrealized appreciation — other investments | 232,954 | |||
Temporary book/tax differences | (125,869 | ) | ||
Capital loss carryforward | (7,135,146 | ) | ||
Shares of beneficial interest | 159,217,593 | |||
Total net assets | $ | 157,338,573 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $0 of capital loss carryforward in the fiscal year ending August 31, 2011.
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The Fund utilized $0 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
08/31/2016 | $ | 113,623 | ||
08/31/2017 | 5,935,990 | |||
08/31/2018 | 1,085,533 | |||
Total capital loss carryforward | $ | 7,135,146 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund from October 1, 2009 to August 31, 2010 was $23,060,465 and $28,719,398, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 7,691,489 | ||
Aggregate unrealized (depreciation) of investment securities | (2,627,857 | ) | ||
Net unrealized appreciation of investment securities | $ | 5,063,632 | ||
Cost of investments for tax purposes is $156,893,132. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, undistributed net investment income (loss) was increased by $8,251, undistributed net realized gain (loss) was decreased by $8,249 and shares of beneficial interest decreased by $2. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
For the | For the | For the | ||||||||||||||||||||||
eleven months ended | year ended | year ended | ||||||||||||||||||||||
August 31, 2010(a) | September 30, 2009 | September 30, 2008 | ||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
Sales: | ||||||||||||||||||||||||
Class A | 462,492(b | ) | $ | 7,292,351(b | ) | 624,550 | $ | 9,069,094 | 546,523 | $ | 8,860,692 | |||||||||||||
Class B | 42,501 | 666,876 | 63,620 | 900,403 | 36,941 | 592,429 | ||||||||||||||||||
Class C | 275,203 | 4,345,188 | 163,118 | 2,375,341 | 94,165 | 1,512,900 | ||||||||||||||||||
Class Y | 10,234 | 163,408 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Total Sales | 790,430 | $ | 12,467,823 | 851,288 | $ | 12,344,838 | 677,629 | $ | 10,966,021 | |||||||||||||||
Dividend reinvestment: | ||||||||||||||||||||||||
Class A | 293,314 | $ | 4,635,383 | 349,405 | $ | 5,048,650 | 342,240 | $ | 5,443,803 | |||||||||||||||
Class B | 10,806 | 170,137 | 15,260 | 219,136 | 15,050 | 238,564 | ||||||||||||||||||
Class C | 15,684 | 248,771 | 10,533 | 153,108 | 8,027 | 127,648 | ||||||||||||||||||
Class Y | 25 | 409 | -0- | -0- | -0- | -0- | ||||||||||||||||||
Total Dividend Reinvestment | 319,829 | $ | 5,054,700 | 375,198 | $ | 5,420,894 | 365,317 | $ | 5,810,015 | |||||||||||||||
Repurchases: | ||||||||||||||||||||||||
Class A | (938,577 | ) | $ | (14,830,876 | ) | (1,424,586 | ) | $ | (20,394,055 | ) | (1,108,342 | ) | $ | (17,875,079 | ) | |||||||||
Class B | (102,344 | )(b) | (1,610,266 | )(b) | (159,949 | ) | (2,299,976 | ) | (164,835 | ) | (2,650,866 | ) | ||||||||||||
Class C | (36,252 | ) | (576,620 | ) | (56,561 | ) | (789,000 | ) | (78,837 | ) | (1,280,321 | ) | ||||||||||||
Class Y | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||
Total Repurchases | (1,077,173 | ) | $ | (17,017,762 | ) | (1,641,096 | ) | $ | (23,483,031 | ) | (1,352,014 | ) | $ | (21,806,266 | ) | |||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 27% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
In addition, 0.1% of the outstanding shares of the Fund are owned by Invesco or an investment advisor under common control with Invesco. | ||
(b) | Includes automatic conversion of 42,014 Class B shares into 41,896 Class A shares at a value of $663,119. |
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Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 11—Purposes of and Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in inverse floating rate municipal securities, which are variable debt instruments that pay interest at rates that move in the opposite direction of prevailing interest rates. These investments are typically used by the Fund in seeking to enhance the yield of the portfolio. Inverse floating rate investments tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline or remain relatively stable. Inverse floating rate investments have varying degrees of liquidity. Inverse floating rate securities in which the Fund may invest include derivative instruments such as residual interest bonds (“RIBs”) or tender option bonds (“TOBs”). Such instruments are typically created by a special purpose trust that holds long-term fixed rate bonds (which may be tendered by the Fund in certain instances) and sells two classes of beneficial interests: short-term floating rate interests, which are sold to third party investors, and inverse floating residual interests, which are purchased by the Fund. The short-term floating rate interests have first priority on the cash flow from the bonds held by the special purpose trust and the Fund is paid the residual cash flow from the bonds held by the special purpose trust.
The Fund generally invests in inverse floating rate investments that include embedded leverage, thus exposing the Fund to greater risks and increased costs. The market value of a “leveraged” inverse floating rate investment generally will fluctuate in response to changes in market rates of interest to a greater extent than the value of an unleveraged investment. The extent of increases and decreases in the value of inverse floating rate investments generally will be larger than changes in an equal principal amount of a fixed rate security having similar credit quality, redemption provisions and maturity, which may cause the Fund’s net asset value to be more volatile than if it had not invested in inverse floating rate investments.
In certain instances, the short-term floating rate interests created by the special purpose trust may not be able to be sold to third parties or, in the case of holders tendering (or putting) such interests for repayment of principal, may not be able to be remarketed to third parties. In such cases, the special purpose trust holding the long-term fixed rate bonds may be collapsed. In the case of RIBs or TOBs created by the contribution of long-term fixed income bonds by the Fund, the Fund will then be required to repay the principal amount of the tendered securities. During times of market volatility, illiquidity or uncertainty, the Fund could be required to sell other portfolio holdings at a disadvantageous time to raise cash to meet that obligation.
The Fund may also invest in private placement securities. TOBs are presently classified as private placement securities. Private placement securities are subject to restrictions on resale because they have not been registered under the Securities Act of 1933, as amended or are otherwise not readily marketable. As a result of the absence of a public trading market for these securities, they may be less liquid than publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those originally paid by the Fund or less than what may be considered the fair value of such securities.
NOTE 12—Borrowings
During the period ended August 31, 2010, the Acquired Fund entered into a $150,000,000 joint revolving bank credit facility. The Fund terminated its participation in the facility on May 31, 2010.
NOTE 13—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Van Kampen Pennsylvania Tax Free Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Pennsylvania Tax Free Income Fund (formerly known as Van Kampen Pennsylvania Tax Free Income Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights for the year ended September 30, 2009 and prior were audited by other independent auditors whose report dated November 20, 2009 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. With the exception of the actual ending account values and expenses of Class Y shares, the example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2009, through August 31, 2010. The actual ending account value and expenses of Class Y shares in the example below are based on an investment of $1,000 invested as of close of business June 1, 2010 (commencement date) and held through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period (as of close of business June 1, 2010 through August 31, 2010 for Class Y shares). Because the actual ending account value and expense information in the example is not based upon a six month period for Class Y shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period3 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 1,057.91 | $ | 5.76 | $ | 1,019.61 | $ | 5.65 | 1.11 | % | ||||||||||||||||||
B | 1,000.00 | 1,053.63 | 9.89 | 1,015.58 | 9.70 | 1.91 | ||||||||||||||||||||||||
C | 1,000.00 | 1,053.25 | 9.63 | 1,015.83 | 9.45 | 1.86 | ||||||||||||||||||||||||
Y | 1,000.00 | 1,034.92 | 2.18 | 1,020.87 | 4.38 | 0.86 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010, through August 31, 2010 (as of close of business June 1, 2010 through August 31, 2010 for the Class Y shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. For Class Y shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 91 (as of close of business June 1, 2010 through August 31, 2010)/365. Because Class Y shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. |
3 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class Y shares of the Fund and other funds because such data is based on a full six month period. |
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Approval of Investment Advisory and Sub-Advisory Agreements |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen Pennsylvania Tax Free Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
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services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 0.00 | % | ||
Corporate Dividends Received Deduction* | 0.00 | % | ||
U.S. Treasury Obligations* | 100 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Pennsylvania Tax Free Income Fund was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 5,707,880 | 243,322 | 238,293 | 0 |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
VK-PTFI-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Van Kampen Small Cap Growth Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
13 | Financial Statements | |
16 | Financial Highlights | |
20 | Notes to Financial Statements | |
26 | Auditor’s Report | |
27 | Fund Expenses | |
28 | Approval of Investment Advisory and Sub-Advisory Agreements | |
30 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
2 Invesco Van Kampen Small Cap Growth Fund
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
3 Invesco Van Kampen Small Cap Growth Fund
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
As part of Invesco’s June 1, 2010, acquisition of Morgan Stanley’s retail asset management business, Van Kampen Small Cap Growth Fund was reorganized into Invesco Van Kampen Small Cap Growth Fund.
For the five-month reporting period ended August 31, 2010, Invesco Van Kampen Small Cap Growth Fund had negative returns but, at net asset value, held up better than its broad market/style-specific benchmark, the Russell 2000 Growth Index. Outperformance was driven primarily by stock selection in several sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 3/31/10 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -9.15 | % | ||
Class B Shares | -9.41 | |||
Class C Shares | -9.50 | |||
Class Y Shares | -9.15 | |||
Russell 2000 Growth Index▼ (Broad Market/Style Specific Index) | -10.27 | |||
▼ Lipper Inc.
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process seeks to identify small cap companies with growth rates that are higher and/or potentially more sustainable than what is implied by current valuations and market expectations.
We begin with a quantitative model that ranks all stock candidates based on a set of variables we believe are leading indicators of change and are common in those companies that have the potential for sustainable growth, competitive advantage and ability to execute. This proprietary model provides an objective approach to identifying new investment opportunities. The highest ranked stocks become the primary focus of our research efforts.
Our stock selection process includes the development and analysis of a fully integrated financial model, which allows
our team members to build a more complete understanding of the financial health of each investment candidate. The second step in our security research involves due diligence of the company, which includes in-depth discussions with members of company management teams. We also leverage Porter’s Five Forces Analysis, a theoretical tool that carefully examines a company on five dimensions (supplier power, threat of substitutes, barriers to entry, buying power and degree of rivalry). This tool is used to further measure and define the potential sustainability of a company’s earnings growth and whether there is upside to expectations already embedded in the price of the security.
Risk management plays an important role in portfolio construction, as our target portfolio attempts to maximize the relationship between risk and return.
We consider selling a stock for any of the following reasons:
n | Our investment thesis plays out or is no longer valid |
n | Fundamentals deteriorate |
n | Macroeconomic conditions change |
n | Risk/reward becomes unfavorable or a higher conviction investment idea arises with better risk/reward. |
Market conditions and your Fund
Despite increased conviction that the domestic financial crisis has been contained, investors continued to worry about the slope and duration of the economic recovery. Following a brief positive swing in sentiment pertaining to a generally better-than-expected earnings season, combined with positive response to the European bank “stress tests” in July, risk aversion once again returned to the market in August.
Investors continued to contemplate decelerating leading economic indicators, a still-fragile employment situation, eurozone sovereign debt woes, increased regulatory scrutiny and China’s self-imposed slow down given signs of overheating earlier in the year. The sea change in sentiment from month to month highlighted that uncertainty concerning the global macroeconomy remained elevated, resulting in increased volatility in the marketplace during the reporting period.
In this environment, all 10 sectors of the Russell 2000 Growth Index declined during the reporting period. While the consumer discretionary, health care and energy sectors all had double-digit negative returns, traditionally defensive sectors such as consumer staples, telecommunication services and utilities generally had the highest returns.
While the Fund had negative absolute returns during the reporting period, at net asset value, it held up slightly better than its style-specific benchmark, the
Portfolio Composition
By Sector
Information Technology | 23.3 | % | ||
Health Care | 20.2 | |||
Consumer Discretionary | 18.0 | |||
Industrials | 11.7 | |||
Financials | 6.8 | |||
Materials | 5.2 | |||
Energy | 4.9 | |||
Consumer Staples | 1.6 | |||
Telecommunication Services | 1.6 | |||
Utilities | 0.9 | |||
Money Market Funds | ||||
Plus Other Assets Less Liabilities | 5.8 |
Top 10 Equity Holdings*
1. iShares Russell 2000 | ||||
Growth Index Fund | 2.0 | % | ||
2. GSI Commerce Inc. | 1.2 | |||
3. TransDigm Group Inc. | 1.2 | |||
4. IESI-BFC Ltd. | 1.1 | |||
5. Jarden Corp. | 1.0 | |||
6. Esterline Technologies Corp. | 1.0 | |||
7. Netscout Systems Inc. | 1.0 | |||
8. MICROS Systems Inc. | 0.9 | |||
9. TIBCO Software Inc. | 0.9 | |||
10. Maidenform Brands Inc. | 0.9 | |||
Top Five Industries
1. Application Software | 5.8 | % | ||
2. Health Care Equipment | 4.2 | |||
3. Health Care Services | 3.2 | |||
4. Electronic Equipment Manufacturers | 3.1 | |||
5. Semiconductors | 2.8 |
Total Net Assets | $964.0 million | |
Total Number of Holdings* | 133 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 Invesco Van Kampen Small Cap Growth Fund
Table of Contents
Russell 2000 Growth Index. The Fund outperformed the index by the widest margins in the consumer discretionary, health care and energy sectors. Outperformance in each of these sectors was driven largely by stock selection.
The Fund outperformed the Russell 2000 Growth Index most significantly in the consumer discretionary sector, driven by stock selection. Examples of holdings that made key contributions to performance included automotive components and systems supplier TRW Automotive, intimate apparel maker Maidenform Brands and restaurant operator Buffalo Wild Wings.
Outperformance in the health care sector was driven primarily by stock selection. In this sector, holdings that contributed to the Fund’s performance included vascular disease and disorder technology provider ev3, skin medication developer Medicis Pharmaceutical and pharmaceutical products maker Human Genome Sciences. An underweight position in the health care sector also contributed to outperformance. Before the end of the fiscal year, we sold our holdings in Human Genome Sciences.
The Fund also outperformed in the energy sector, largely due to stock selection. Two energy holdings that contributed to performance included oil and gas exploration services provider Complete Production Services and drilling contractor Patterson UTI. Before the end of the fiscal year, we sold our holdings in Complete Production Services.
Some of the Fund’s outperformance was offset by underperformance in other sectors, including information technology (IT) and financials. The Fund underperformed by the widest margin in the IT sector, driven by stock selection. In this sector, examples of holdings that detracted from performance included Fairchild Semiconductor International, electronic manufacturing services provider Plexus and network infrastructure solutions provider Ciena. In the financials sector, detractors from performance included asset management firm Affiliated Managers Group and financial services provider SVB Financial.
As we’ve discussed, the stock market experienced volatility during the reporting period. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult your financial adviser to discuss your individual financial program.
We thank you for your commitment to Invesco Van Kampen Small Cap Growth Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Matthew Hart
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen Small Cap Growth Fund. He joined Invesco in 2010. Mr. Hart earned a B.B.A. from Southern Methodist University.
Justin Speer
Portfolio manager, is manager of Invesco Van Kampen Small Cap Growth Fund. He joined Invesco in 2010. Mr. Speer earned a B.S. in finance and accounting from Texas Christian University.
5 Invesco Van Kampen Small Cap Growth Fund
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund data from 11/27/00, index data from 11/30/00
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges.
Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating
changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $4,000 and $8,000 is the same size as the space between $8,000 and $16,000.
6 Invesco Van Kampen Small Cap Growth Fund
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Average Annual Total Returns | ||||
As of 8/31/10, including maximum applicable sales charges | ||||
Class A Shares | ||||
Inception (11/27/00) | -1.33 | % | ||
5 Years | 0.01 | |||
1 Year | 2.82 | |||
Class B Shares | ||||
Inception (11/27/00) | -1.34 | % | ||
5 Years | 0.20 | |||
1 Year | 3.49 | |||
Class C Shares | ||||
Inception (11/27/00) | -1.49 | % | ||
5 Years | 0.39 | |||
1 Year | 6.86 | |||
Class Y Shares | ||||
Inception (2/2/06) | -1.37 | % | ||
1 Year | 9.00 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco Van Kampen Small Cap Growth Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen Small Cap Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
Average Annual Total Returns | ||||
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges. | ||||
Class A Shares | ||||
Inception (11/27/00) | -1.28 | % | ||
5 Years | 1.38 | |||
1 Year | 9.45 | |||
Class B Shares | ||||
Inception (11/27/00) | -1.29 | % | ||
5 Years | 1.59 | |||
1 Year | 10.55 | |||
Class C Shares | ||||
Inception (11/27/00) | -1.43 | % | ||
5 Years | 1.77 | |||
1 Year | 13.91 | |||
Class Y Shares | ||||
Inception (2/2/06) | -1.24 | % | ||
1 Year | 16.17 |
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.40%, 2.15%, 2.15% and 1.15%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
A redemption fee of 2% will be imposed on certain redemptions or exchanges out of the Fund within 31 days of purchase. Exceptions to the redemption fee are listed in the Fund’s prospectus.
7 Invesco Van Kampen Small Cap Growth Fund
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Invesco Van Kampen Small Cap Growth Fund’s investment objective is to seek capital appreciation.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | Investing in REITs (real estate investment trusts) makes a Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. | |
n | Small capitalization companies often have less predictable earnings, more limited product lines, markets, distribution channels or financial resources, and the management of such companies may be dependent upon one or a few key people. The market movements of equity securities of small capitalization companies may be more abrupt and volatile than the market movements of equity securities of larger, more established companies or the stock market in general and are generally less liquid than equity securities of larger companies. |
n | Investments in growth-oriented equity securities may have above-average volatility of price movement. The returns on growth securities may or may not move in tandem with the returns on other styles of investing or the overall stock markets. | |
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation, and trading and foreign taxation issues. |
About indexes used in this report
n | The Russell 2000® Growth Index is an unmanaged index considered representative of small-cap growth stocks. The Russell 2000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols | ||||
Class A Shares | VASCX | |||
Class B Shares | VBSCX | |||
Class C Shares | VCSCX | |||
Class Y Shares | VISCX |
8 Invesco Van Kampen Small Cap Growth Fund
Table of Contents
Schedule of Investments
August 31, 2010
Number of | ||||||||
Description | Shares | Value | ||||||
Common Stocks–92.2% | ||||||||
Advertising–0.6% | ||||||||
National CineMedia, Inc. | 370,043 | $ | 5,879,983 | |||||
Aerospace & Defense–2.2% | ||||||||
Esterline Technologies Corp.(a) | 213,116 | 9,803,336 | ||||||
TransDigm Group, Inc. | 190,911 | 11,051,838 | ||||||
20,855,174 | ||||||||
Alternative Carriers–0.7% | ||||||||
AboveNet, Inc.(a) | 134,943 | 6,965,758 | ||||||
Apparel, Accessories & Luxury Goods–2.2% | ||||||||
Carter’s, Inc.(a) | 264,433 | 5,907,433 | ||||||
Maidenform Brands, Inc.(a) | 329,029 | 8,775,204 | ||||||
Warnaco Group, Inc.(a) | 155,025 | 6,492,447 | ||||||
21,175,084 | ||||||||
Apparel Retail–2.2% | ||||||||
Children’s Place Retail Stores, Inc.(a) | 143,001 | 6,243,424 | ||||||
Foot Locker, Inc. | 621,400 | 7,295,236 | ||||||
J. Crew Group, Inc.(a) | 244,812 | 7,464,318 | ||||||
21,002,978 | ||||||||
Application Software–5.8% | ||||||||
Blackboard, Inc.(a)(b) | 243,720 | 8,064,695 | ||||||
Bottomline Technologies, Inc.(a) | 501,200 | 7,021,812 | ||||||
Informatica Corp.(a) | 214,837 | 6,909,158 | ||||||
Netscout Systems, Inc.(a) | 577,158 | 9,136,411 | ||||||
QLIK Technologies, Inc.(a) | 159,112 | 2,964,256 | ||||||
SFN Group, Inc.(a) | 719,886 | 3,916,180 | ||||||
Solera Holdings, Inc. | 118,982 | 4,721,206 | ||||||
SS&C Technologies Holdings, Inc.(a) | 330,108 | 4,651,222 | ||||||
TIBCO Software, Inc.(a) | 615,072 | 8,912,393 | ||||||
56,297,333 | ||||||||
Asset Management & Custody Banks–0.5% | ||||||||
Affiliated Managers Group, Inc.(a) | 72,744 | 4,670,892 | ||||||
Auto Parts & Equipment–0.8% | ||||||||
TRW Automotive Holdings Corp.(a) | 222,484 | 7,733,544 | ||||||
Automotive Retail–0.6% | ||||||||
Asbury Automotive Group, Inc.(a) | 516,530 | 6,162,203 | ||||||
Biotechnology–2.7% | ||||||||
Acorda Therapeutics, Inc.(a) | 163,001 | 4,909,590 | ||||||
BioMarin Pharmaceuticals, Inc.(a) | 405,574 | 8,229,097 | ||||||
Incyte Corp., Ltd.(a) | 383,318 | 4,799,141 | ||||||
United Therapeutics Corp.(a) | 173,577 | 8,022,729 | ||||||
25,960,557 | ||||||||
Building Products–0.6% | ||||||||
Owens Corning(a) | 220,339 | 5,993,221 | ||||||
Catalog Retail–0.6% | ||||||||
HSN, Inc.(a) | 234,018 | 6,152,333 | ||||||
Communications Equipment–1.8% | ||||||||
Arris Group, Inc.(a) | 536,806 | 4,385,705 | ||||||
Ciena Corp.(a) | 675,968 | 8,429,321 | ||||||
Finisar Corp.(a)(b) | 336,474 | 4,303,502 | ||||||
17,118,528 | ||||||||
Computer & Electronics Retail–1.4% | ||||||||
hhgregg, Inc.(a) | 297,091 | 5,615,020 | ||||||
RadioShack Corp. | 430,099 | 7,948,229 | ||||||
13,563,249 | ||||||||
Computer Storage & Peripherals–0.8% | ||||||||
QLogic Corp.(a) | 484,649 | 7,218,847 | ||||||
Construction & Engineering–0.5% | ||||||||
Dycom Industries, Inc.(a) | 620,959 | 4,992,510 | ||||||
Consumer Finance–0.7% | ||||||||
Cardtronics, Inc.(a) | 452,157 | 6,262,374 | ||||||
Data Processing & Outsourced Services–0.6% | ||||||||
VeriFone Systems, Inc.(a) | 252,401 | 6,103,056 | ||||||
Distributors–0.8% | ||||||||
LKQ Corp.(a) | 423,471 | 7,876,561 | ||||||
Electric Utilities–0.9% | ||||||||
ITC Holdings Corp. | 148,009 | 8,578,602 | ||||||
Electrical Components & Equipment–2.0% | ||||||||
EnerSys(a) | 219,305 | 4,840,061 | ||||||
Fushi Copperweld, Inc.(a) | 721,000 | 5,912,200 | ||||||
Regal-Beloit Corp. | 144,618 | 8,000,268 | ||||||
18,752,529 | ||||||||
Electronic Equipment Manufacturers–3.1% | ||||||||
Checkpoint Systems, Inc.(a) | 463,995 | 8,509,668 | ||||||
Cogent, Inc.(a) | 667,248 | 7,339,728 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Small Cap Growth Fund
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Number of | ||||||||
Description | Shares | Value | ||||||
Electronic Equipment Manufacturers–(continued) | ||||||||
Coherent, Inc.(a) | 228,752 | $ | 8,498,137 | |||||
Vishay Intertechnology, Inc.(a) | 749,568 | 5,764,178 | ||||||
30,111,711 | ||||||||
Electronic Manufacturing Services–1.1% | ||||||||
Multi-Fineline Electronix, Inc.(a) | 101,083 | 2,106,570 | ||||||
Plexus Corp.(a) | 366,444 | 8,435,541 | ||||||
10,542,111 | ||||||||
Environmental & Facilities Services–2.0% | ||||||||
IESI-BFC Ltd. (Canada) | 466,959 | 11,034,241 | ||||||
Waste Connections, Inc.(a) | 217,935 | 8,227,046 | ||||||
19,261,287 | ||||||||
Fertilizers & Agricultural Chemicals–0.7% | ||||||||
Scotts Miracle-Gro Co., Class A | 137,250 | 6,482,318 | ||||||
Footwear–0.6% | ||||||||
Steven Madden Ltd.(a) | 171,195 | 5,894,244 | ||||||
General Merchandise Stores–1.3% | ||||||||
Big Lots, Inc.(a) | 199,886 | 6,248,436 | ||||||
Dollar Tree, Inc.(a) | 143,811 | 6,518,953 | ||||||
12,767,389 | ||||||||
Health Care Distributors–0.7% | ||||||||
PSS World Medical, Inc.(a) | 384,217 | 7,054,224 | ||||||
Health Care Equipment–4.2% | ||||||||
American Medical Systems Holdings, Inc.(a) | 410,901 | 7,486,616 | ||||||
Arthrocare Corp.(a) | 245,301 | 6,368,014 | ||||||
NuVasive, Inc.(a)(b) | 267,888 | 7,862,513 | ||||||
Sirona Dental Systems, Inc.(a) | 247,704 | 7,807,630 | ||||||
Thoratec Corp.(a) | 86,876 | 2,797,407 | ||||||
Volcano Corp.(a) | 385,408 | 8,517,517 | ||||||
40,839,697 | ||||||||
Health Care Facilities–0.8% | ||||||||
Health Management Associates, Inc., Class A(a) | 1,286,604 | 8,041,275 | ||||||
Health Care Services–3.2% | ||||||||
Emergency Medical Services Corp., Class A(a) | 177,310 | 8,519,745 | ||||||
Genoptix, Inc.(a) | 313,480 | 5,394,991 | ||||||
Gentiva Health Services, Inc.(a) | 407,601 | 8,376,201 | ||||||
HMS Holdings Corp.(a) | 162,510 | 8,479,772 | ||||||
30,770,709 | ||||||||
Health Care Supplies–1.7% | ||||||||
Cooper Cos., Inc. | 211,371 | 8,526,706 | ||||||
Haemonetics Corp.(a) | 157,218 | 8,187,914 | ||||||
16,714,620 | ||||||||
Health Care Technology–1.3% | ||||||||
MedAssets, Inc.(a)(b) | 296,694 | 5,880,475 | ||||||
SXC Health Solutions Corp. (Canada)(a) | 83,078 | 6,463,468 | ||||||
12,343,943 | ||||||||
Healthcare–0.8% | ||||||||
Brookdale Senior Living, Inc.(a) | 592,639 | 7,941,363 | ||||||
Homebuilding–0.7% | ||||||||
Meritage Homes Corp.(a) | 387,532 | 6,921,322 | ||||||
Housewares & Specialties–1.9% | ||||||||
Jarden Corp. | 366,649 | 9,877,524 | ||||||
Tupperware Brands Corp. | 220,570 | 8,677,224 | ||||||
18,554,748 | ||||||||
Industrial Machinery–2.2% | ||||||||
Actuant Corp. | 318,093 | 6,304,603 | ||||||
Albany International Corp. | 133,050 | 2,361,637 | ||||||
Barnes Group, Inc. | 404,485 | 6,152,217 | ||||||
CLARCOR, Inc. | 188,845 | 6,352,746 | ||||||
21,171,203 | ||||||||
Internet Retail–1.2% | ||||||||
GSI Commerce, Inc.(a) | 486,908 | 11,086,895 | ||||||
Internet Software & Services–2.1% | ||||||||
Infospace, Inc.(a) | 531,313 | 3,724,504 | ||||||
Open Text Corp. (Canada)(a)(b) | 169,369 | 7,452,236 | ||||||
VistaPrint NV (Netherlands)(a) | 104,873 | 3,217,503 | ||||||
Websense, Inc.(a) | 277,117 | 5,389,926 | ||||||
19,784,169 | ||||||||
Investment Banking & Brokerage–2.1% | ||||||||
Evercore Partners, Inc., Class A | 327,124 | 8,011,267 | ||||||
Knight Capital Group, Inc., Class A(a) | 591,983 | 7,032,758 | ||||||
Stifel Financial Corp.(a) | 107,768 | 4,664,199 | ||||||
19,708,224 | ||||||||
IT Consulting & Other Services–2.1% | ||||||||
Acxiom Corp.(a) | 629,231 | 7,799,318 | ||||||
Lender Processing Services, Inc. | 206,241 | 6,049,048 | ||||||
Sapient Corp. | 632,871 | 6,600,845 | ||||||
20,449,211 | ||||||||
Life Sciences Tools & Services–1.5% | ||||||||
Bruker Corp.(a)(b) | 493,536 | 5,868,143 | ||||||
Parexel International Corp.(a) | 412,170 | 8,198,061 | ||||||
14,066,204 | ||||||||
Managed Health Care–0.8% | ||||||||
AMERIGROUP Corp.(a) | 204,246 | 7,536,677 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Small Cap Growth Fund
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Number of | ||||||||
Description | Shares | Value | ||||||
Marine–0.7% | ||||||||
Kirby Corp.(a) | 174,000 | $ | 6,408,420 | |||||
Marine Ports & Services–0.4% | ||||||||
Aegean Marine Petroleum Network, Inc. (Marshall Islands) | 246,665 | 3,672,842 | ||||||
Metal & Glass Containers–0.9% | ||||||||
Greif, Inc., Class A | 151,111 | 8,590,660 | ||||||
Oil & Gas Drilling–0.8% | ||||||||
Patterson–UTI Energy, Inc. | 506,487 | 7,475,748 | ||||||
Oil & Gas Equipment & Services–1.4% | ||||||||
Newpark Resources, Inc.(a) | 818,918 | 7,149,154 | ||||||
Oil States International, Inc.(a) | 154,187 | 6,357,130 | ||||||
13,506,284 | ||||||||
Oil & Gas Exploration & Production–2.1% | ||||||||
Brigham Exploration Co.(a) | 379,796 | 5,818,475 | ||||||
Comstock Resources, Inc.(a) | 369,791 | 8,050,350 | ||||||
Whiting Petroleum Corp.(a) | 72,922 | 6,186,702 | ||||||
20,055,527 | ||||||||
Oil & Gas Refining & Marketing–0.7% | ||||||||
World Fuel Services Corp. | 245,223 | 6,262,995 | ||||||
Packaged Foods & Meats–1.4% | ||||||||
Diamond Foods, Inc.(b) | 119,429 | 5,043,487 | ||||||
TreeHouse Foods, Inc.(a) | 206,468 | 8,568,422 | ||||||
13,611,909 | ||||||||
Paper Packaging–1.2% | ||||||||
Packaging Corp. of America | 245,300 | 5,467,737 | ||||||
Rock-Tenn Co., Class A | 131,369 | 6,329,358 | ||||||
11,797,095 | ||||||||
Paper Products–0.7% | ||||||||
Domtar Corp. | 110,624 | 6,639,652 | ||||||
Personal Products–0.2% | ||||||||
Inter Parfums, Inc. | 117,759 | 1,933,603 | ||||||
Pharmaceuticals–2.4% | ||||||||
Auxilium Pharmaceuticals, Inc.(a)(b) | 202,181 | 5,238,510 | ||||||
MAP Pharmaceuticals, Inc.(a) | 121,628 | 1,315,407 | ||||||
Medicis Pharmaceutical Corp., Class A | 315,582 | 8,678,505 | ||||||
Salix Pharmaceuticals Ltd.(a) | 211,749 | 8,016,817 | ||||||
23,249,239 | ||||||||
Property & Casualty Insurance–0.8% | ||||||||
ProAssurance Corp.(a) | 148,269 | 7,850,844 | ||||||
Regional Banks–0.8% | ||||||||
SVB Financial Group(a) | 204,952 | 7,618,066 | ||||||
Restaurants–1.3% | ||||||||
BJ’s Restaurants, Inc.(a) | 261,384 | 6,257,533 | ||||||
Buffalo Wild Wings, Inc.(a) | 151,249 | 6,325,233 | ||||||
12,582,766 | ||||||||
Semiconductor Equipment–0.8% | ||||||||
Cymer, Inc.(a) | 255,906 | 7,531,314 | ||||||
Semiconductors–2.8% | ||||||||
Cavium Networks, Inc.(a)(b) | 274,828 | 6,634,348 | ||||||
Cypress Semiconductor Corp.(a) | 818,995 | 8,669,062 | ||||||
Fairchild Semiconductor International, Inc.(a) | 746,180 | 5,767,971 | ||||||
Microsemi Corp.(a) | 441,656 | 6,183,184 | ||||||
27,254,565 | ||||||||
Specialized Consumer Services–0.8% | ||||||||
Coinstar, Inc.(a)(b) | 185,579 | 8,072,687 | ||||||
Specialty Chemicals–1.7% | ||||||||
Cytec Industries, Inc. | 133,236 | 6,319,384 | ||||||
Rockwood Holdings, Inc.(a) | 222,372 | 5,748,316 | ||||||
Stepan Co. | 81,176 | 4,501,209 | ||||||
16,568,909 | ||||||||
Specialty Stores–0.8% | ||||||||
Tractor Supply Co. | 116,856 | 7,943,871 | ||||||
Systems Software–2.7% | ||||||||
CommVault Systems, Inc.(a) | 339,667 | 8,338,825 | ||||||
Fortinet, Inc.(a) | 105,064 | 2,142,255 | ||||||
MICROS Systems, Inc.(a) | 237,802 | 9,060,256 | ||||||
Rovi Corp.(a) | 157,543 | 6,854,696 | ||||||
26,396,032 | ||||||||
Trucking–0.8% | ||||||||
Landstar System, Inc. | 223,489 | 8,041,134 | ||||||
Wireless Telecommunication Services–0.9% | ||||||||
Syniverse Holdings, Inc.(a) | 411,648 | 8,467,599 | ||||||
Total Common Stocks 92.2% | 888,890,621 | |||||||
Investment Company–2.0% | ||||||||
iShares Russell 2000 Growth Index Fund(b) | 297,400 | 19,521,336 | ||||||
Total Long-Term Investments 94.2% (Cost $903,272,802) | 908,411,957 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Small Cap Growth Fund
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Number of | ||||||||
Description | Shares | Value | ||||||
Money Market Funds–6.3% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 30,051,119 | $ | 30,051,119 | |||||
Premier Portfolio–Institutional Class(c) | 30,051,119 | 30,051,119 | ||||||
Total Money Market Funds 6.3% (Cost $60,102,238) | 60,102,238 | |||||||
Total Investments (excluding investments purchased with cash collateral from securities on loan) 100.5% (Cost $963,375,040) | 968,514,195 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–5.1% | ||||||||
Liquid Assets Portfolio–Institutional Class(c)(d) (Cost $49,144,395) | 49,144,395 | 49,144,395 | ||||||
Total Investments 105.6% (Cost $1,012,519,435) | 1,017,658,590 | |||||||
Liabilities in Excess of Other Assets (5.6%) | (53,677,123 | ) | ||||||
Net Assets 100.0% | $ | 963,981,467 | ||||||
Percentages are calculated as a percentage of net assets.
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | All or a portion of this security was out on loan at August 31, 2010. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(d) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities. See Note 1(F) in the Notes to Financial Statements. |
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 3 in the Notes to Financial Statements for further information regarding fair value measurements.)
The following is a summary of the inputs used as of August 31, 2010 in valuing the Fund’s investments carried at value:
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Equity Securities | $ | 1,017,658,590 | $ | — | $ | — | $ | 1,017,658,590 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Van Kampen Small Cap Growth Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $903,272,802)* | $ | 908,411,957 | ||
Investments in affiliated money market funds, at value and cost | 109,246,633 | |||
Receivables: | ||||
Fund shares sold | 2,057,953 | |||
Dividends | 287,440 | |||
Investments sold | 243,917 | |||
Interest | 12,084 | |||
Other | 5,710 | |||
Total assets | 1,020,265,694 | |||
Liabilities: | ||||
Payables: | ||||
Collateral upon return of securities loaned | 49,144,395 | |||
Investments purchased | 3,481,976 | |||
Fund shares repurchased | 2,491,042 | |||
Distributor and affiliates | 776,554 | |||
Accrued expenses | 390,260 | |||
Total liabilities | 56,284,227 | |||
Net assets | $ | 963,981,467 | ||
Net assets consist of: | ||||
Capital (Par value of $0.01 per share with an unlimited number of shares authorized) | $ | 996,863,305 | ||
Net unrealized appreciation | 5,139,155 | |||
Accumulated net realized gain (loss) | (38,020,993 | ) | ||
Net assets | $ | 963,981,467 | ||
Maximum offering price per share: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share (Based on net assets of $691,455,574 and 79,154,602 shares of beneficial interest issued and outstanding) | $ | 8.74 | ||
Maximum sales charge (5.50% of offering price) | 0.51 | |||
Maximum offering price to public | $ | 9.25 | ||
Class B Shares: | ||||
Net asset value and offering price per share (Based on net assets of $19,248,962 and 2,351,992 shares of beneficial interest issued and outstanding) | $ | 8.18 | ||
Class C Shares: | ||||
Net asset value and offering price per share (Based on net assets of $53,673,384 and 6,626,504 shares of beneficial interest issued and outstanding) | $ | 8.10 | ||
Class Y Shares: | ||||
Net asset value and offering price per share (Based on net assets of $199,603,547 and 22,568,303 shares of beneficial interest issued and outstanding) | $ | 8.84 | ||
* | At August 31, 2010, securities with an aggregate value of $47,471,153 were on loan to brokers. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Small Cap Growth Fund
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Statements of Operations
For the | For the | |||||||
five months ended | year ended | |||||||
August 31, 2010 | March 31, 2010 | |||||||
Investment income: | ||||||||
Dividends (net of foreign withholding taxes of $21,635 and $20,253, respectively) | $ | 1,250,495 | $ | 2,950,004 | ||||
Dividends from affiliated money market funds (including securities lending income of $4,767 and $0, respectively) | 43,829 | -0- | ||||||
Interest | 24,974 | 74,180 | ||||||
Total income | 1,319,298 | 3,024,184 | ||||||
Expenses: | ||||||||
Investment advisory fee | 3,441,481 | 6,682,320 | ||||||
Distribution fees | ||||||||
Class A | 775,132 | 1,499,245 | ||||||
Class B | 48,877 | 89,937 | ||||||
Class C | 250,586 | 527,974 | ||||||
Transfer agent fees | 959,565 | 2,315,887 | ||||||
Reports to shareholders | 227,984 | 213,220 | ||||||
Administrative services fees | 101,363 | 146,651 | ||||||
Registration fees | 47,718 | 133,762 | ||||||
Professional fees | 38,706 | 88,654 | ||||||
Trustees’ and officers’ fees and benefits | 25,942 | 59,711 | ||||||
Custody | 21,688 | 59,222 | ||||||
Other | 16,394 | 33,289 | ||||||
Total expenses | 5,955,436 | 11,849,872 | ||||||
Expense reduction | 21,841 | 0 | ||||||
Less credits earned on cash balances | 0 | 236 | ||||||
Net Expenses | 5,933,595 | 11,849,636 | ||||||
Net investment income (loss) | (4,614,297 | ) | (8,825,452 | ) | ||||
Realized and unrealized gain (loss): | ||||||||
Realized gain (loss): | ||||||||
Investments | 69,714,816 | 92,179,760 | ||||||
Foreign currency transactions | 725 | (7,841 | ) | |||||
Net realized gain | 69,715,541 | 92,171,919 | ||||||
Unrealized appreciation (depreciation): | ||||||||
Beginning of the period | 171,054,209 | (21,116,616 | ) | |||||
End of the period: | ||||||||
Investments | 5,139,155 | 171,053,895 | ||||||
Foreign currency translation | -0- | 314 | ||||||
5,139,155 | 171,054,209 | |||||||
Net unrealized appreciation (depreciation) during the period | (165,915,054 | ) | 192,170,825 | |||||
Net realized and unrealized gain (loss) | (96,199,513 | ) | 284,342,744 | |||||
Net increase (decrease) in net assets from operations | $ | (100,813,810 | ) | $ | 275,517,292 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Small Cap Growth Fund
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Statements of Changes in Net Assets
For the | For the | For the | ||||||||||
five months ended | year ended | year ended | ||||||||||
August 31, 2010 | March 31, 2010 | March 31, 2009 | ||||||||||
From investment activities: | ||||||||||||
Operations: | ||||||||||||
Net investment income (loss) | $ | (4,614,297 | ) | $ | (8,825,452 | ) | $ | (5,872,970 | ) | |||
Net realized gain (loss) | 69,715,541 | 92,171,919 | (177,125,868 | ) | ||||||||
Net unrealized appreciation (depreciation) during the period | (165,915,054 | ) | 192,170,825 | (37,881,539 | ) | |||||||
Net change in net assets from investment activities | (100,813,810 | ) | 275,517,292 | (220,880,377 | ) | |||||||
From capital transactions: | ||||||||||||
Proceeds from shares sold | 145,980,920 | 573,901,702 | 512,494,540 | |||||||||
Cost of shares repurchased | (183,448,415 | ) | (302,469,679 | ) | (220,016,772 | ) | ||||||
Net change in net assets from capital transactions | (37,467,495 | ) | 271,432,023 | 292,477,768 | ||||||||
Total increase (decrease) in net assets | (138,281,305 | ) | 546,949,315 | 71,597,391 | ||||||||
Net assets: | ||||||||||||
Beginning of the period | 1,102,262,772 | 555,313,457 | 483,716,066 | |||||||||
End of the period (including accumulated net investment income (loss) of $0, $(231,253) and $(139,440), respectively) | $ | 963,981,467 | $ | 1,102,262,772 | $ | 555,313,457 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Van Kampen Small Cap Growth Fund
Table of Contents
Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class A Shares | ||||||||||||||||||||||||
Five months ended | Year ended March 31, | |||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 9.62 | $ | 6.93 | $ | 10.15 | $ | 10.70 | $ | 10.80 | $ | 7.98 | ||||||||||||
Net investment income (loss)(a) | (0.04 | ) | (0.09 | ) | (0.09 | ) | (0.10 | ) | (0.09 | ) | (0.10 | ) | ||||||||||||
Net realized and unrealized gain (loss) | (0.84 | ) | 2.78 | (3.13 | ) | 0.29 | (0.01 | ) | 2.92 | |||||||||||||||
�� | ||||||||||||||||||||||||
Total from investment operations | (0.88 | ) | 2.69 | (3.22 | ) | 0.19 | (0.10 | ) | 2.82 | |||||||||||||||
Less distributions from net realized gain | -0- | -0- | -0- | 0.74 | -0- | -0- | ||||||||||||||||||
Net asset value, end of the period | $ | 8.74 | $ | 9.62 | $ | 6.93 | $ | 10.15 | $ | 10.70 | $ | 10.80 | ||||||||||||
Total return* | (9.15 | )%(b) | 38.82 | %(c) | (31.72 | )%(c) | 0.79 | %(c) | (0.83 | )%(c) | 35.21 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 691.5 | $ | 749.0 | $ | 402.6 | $ | 317.6 | $ | 226.6 | $ | 146.9 | ||||||||||||
Ratio of expenses to average net assets* | 1.34 | %(e) | 1.39 | %(d) | 1.40 | %(d) | 1.38 | %(d) | 1.47 | %(d) | 1.61 | %(d) | ||||||||||||
Ratio of net investment income (loss) to average net assets* | (1.04 | )%(e) | (1.04 | )% | (1.00 | )% | (0.92 | )% | (0.92 | )% | (1.06 | )% | ||||||||||||
Portfolio turnover | 63 | %(f) | 234 | % | 219 | % | 194 | % | 321 | % | 277 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.34 | %(e) | N/A | N/A | N/A | N/A | 1.63 | %(d) | ||||||||||||||||
Ratio of net investment income (loss) to average net assets | (1.04 | )%(e) | N/A | N/A | N/A | N/A | (1.09 | )% | ||||||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The ratio of expenses to average net assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended March 31, 2006. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $739,669. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A = Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Van Kampen Small Cap Growth Fund
Table of Contents
Financial Highlights—(continued)
Class B Shares | ||||||||||||||||||||||||
Five months ended | Year ended March 31, | |||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 9.03 | $ | 6.51 | $ | 9.59 | $ | 10.22 | $ | 10.39 | $ | 7.74 | ||||||||||||
Net investment income (loss)(a) | (0.05 | ) | (0.09 | ) | (0.14 | ) | (0.18 | ) | (0.16 | ) | (0.16 | ) | ||||||||||||
Net realized and unrealized gain (loss) | (0.80 | ) | 2.61 | (2.94 | ) | 0.29 | (0.01 | ) | 2.81 | |||||||||||||||
Total from investment operations | (0.85 | ) | 2.52 | (3.08 | ) | 0.11 | (0.17 | ) | 2.65 | |||||||||||||||
Less distributions from net realized gain | -0- | -0- | -0- | 0.74 | -0- | -0- | ||||||||||||||||||
Net asset value, end of the period | $ | 8.18 | $ | 9.03 | $ | 6.51 | $ | 9.59 | $ | 10.22 | $ | 10.39 | ||||||||||||
Total return* | (9.41 | )%(b)(d) | 38.71 | %(c)(e) | (32.12 | )%(c)(e) | 0.03 | %(c) | (1.64 | )%(c) | 34.24 | %(c) | ||||||||||||
Net assets at end of the period (In millions) | $ | 19.2 | $ | 23.2 | $ | 22.0 | $ | 42.7 | $ | 50.6 | $ | 59.1 | ||||||||||||
Ratio of expenses to average net assets* | 1.63 | (d)(g) | 1.53 | %(e)(f) | 2.04 | %(e)(f) | 2.14 | %(f) | 2.22 | %(f) | 2.36 | %(f) | ||||||||||||
Ratio of net investment income (loss) to average net assets* | (1.33 | )%(d)(g) | (1.19 | )%(e) | (1.65 | )%(e) | (1.68 | )% | (1.68 | )% | (1.83 | )% | ||||||||||||
Portfolio turnover | 63 | %(h) | 234 | % | 219 | % | 194 | % | 321 | % | 277 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.63 | %(d)(g) | N/A | N/A | N/A | N/A | 2.39 | %(f) | ||||||||||||||||
Ratio of net investment income (loss) to average net assets | (1.33 | )%(d)(g) | N/A | N/A | N/A | N/A | (1.86 | )% | ||||||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The total return, ratio of expenses to average net assets and ratio of net investment income (loss) to average net assets reflect actual 12b-1 fees of 0.54%. | |
(e) | The total return, ratio of expenses to average net assets and ratio of net investment income (loss) to average net assets reflect actual 12b-1 fees of less than 1%. | |
(f) | The ratio of expenses to average net assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended March 31, 2006. | |
(g) | Ratios are annualized and based on average daily net assets (000’s omitted) of $21,835. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A = Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class C Shares | ||||||||||||||||||||||||
Five months ended | Year ended March 31, | |||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 8.95 | $ | 6.50 | $ | 9.58 | $ | 10.21 | $ | 10.38 | $ | 7.73 | ||||||||||||
Net investment income (loss)(a) | (0.07 | ) | (0.14 | ) | (0.14 | ) | (0.18 | ) | (0.16 | ) | (0.16 | ) | ||||||||||||
Net realized and unrealized gain (loss) | (0.78 | ) | 2.59 | (2.94 | ) | 0.29 | (0.01 | ) | 2.81 | |||||||||||||||
Total from investment operations | (0.85 | ) | 2.45 | (3.08 | ) | 0.11 | (0.17 | ) | 2.65 | |||||||||||||||
Less distributions from net realized gain | -0- | -0- | -0- | 0.74 | -0- | -0- | ||||||||||||||||||
Net asset value, end of the period | $ | 8.10 | $ | 8.95 | $ | 6.50 | $ | 9.58 | $ | 10.21 | $ | 10.38 | ||||||||||||
Total return* | (9.50 | )%(b) | 37.69 | %(c) | (32.15 | )%(c) | 0.03 | %(c) | (1.64 | )%(c) | 34.28 | %(c) | ||||||||||||
Net assets at end of the period (in millions) | $ | 53.7 | $ | 62.5 | $ | 39.1 | $ | 42.4 | $ | 31.7 | $ | 28.0 | ||||||||||||
Ratio of expenses to average net assets* | 2.09 | %(e) | 2.14 | %(d) | 2.14 | %(d) | 2.14 | %(d) | 2.22 | %(d) | 2.36 | %(d) | ||||||||||||
Ratio of net investment income (loss) to average net assets* | (1.79 | )%(e) | (1.79 | )% | (1.75 | )% | (1.67 | )% | (1.68 | )% | (1.83 | )% | ||||||||||||
Portfolio turnover | 63 | %(f) | 234 | % | 219 | % | 194 | % | 321 | % | 277 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 2.09 | %(e) | N/A | N/A | N/A | N/A | 2.39 | %(d) | ||||||||||||||||
Ratio of net investment income (loss) to average net assets | (1.79 | )%(e) | N/A | N/A | N/A | N/A | (1.86 | )% | ||||||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The ratio of expenses to average net assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended March 31, 2006. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $59,780. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. |
N/A = Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Financial Highlights—(continued)
Class Y Sharesˆ | ||||||||||||||||||||||||
February 2, 2006 | ||||||||||||||||||||||||
(commencement of | ||||||||||||||||||||||||
Five months ended | Year ended March 31, | operations) to | ||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | March 31, 2006 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 9.73 | $ | 6.99 | $ | 10.20 | $ | 10.74 | $ | 10.80 | $ | 10.00 | ||||||||||||
Net investment income (loss)(a) | (0.03 | ) | (0.06 | ) | (0.07 | ) | (0.07 | ) | (0.07 | ) | (0.01 | ) | ||||||||||||
Net realized and unrealized gain (loss) | (0.86 | ) | 2.80 | (3.14 | ) | 0.27 | 0.01 | 0.81 | ||||||||||||||||
Total from investment operations | (0.89 | ) | 2.74 | (3.21 | ) | 0.20 | (0.06 | ) | 0.80 | |||||||||||||||
Less distributions from net realized gain | -0- | -0- | -0- | 0.74 | -0- | -0- | ||||||||||||||||||
Net asset value, end of the period | $ | 8.84 | $ | 9.73 | $ | 6.99 | $ | 10.20 | $ | 10.74 | $ | 10.80 | ||||||||||||
Total return* | (9.15 | )%(b) | 39.20 | %(c) | (31.47 | )%(c) | 0.88 | %(c) | (0.56 | )%(c) | 8.00 | %(c)** | ||||||||||||
Net assets at end of the period (In millions) | $ | 199.6 | $ | 267.6 | $ | 91.6 | $ | 81.0 | $ | 15.5 | $ | 0.1 | ||||||||||||
Ratio of expenses to average net assets* | 1.09 | %(e) | 1.14 | %(d) | 1.15 | %(d) | 1.14 | %(d) | 1.22 | %(d) | 1.36 | %(d) | ||||||||||||
Ratio of net investment income (loss) to average net assets* | (0.80 | )%(e) | (0.76 | )% | (0.75 | )% | (0.63 | )% | (0.67 | )% | (0.68 | )% | ||||||||||||
Portfolio turnover | 63 | %(f) | 234 | % | 219 | % | 194 | % | 321 | % | 277 | %(f) | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.09 | %(e) | N/A | N/A | N/A | N/A | 1.42 | %(d) | ||||||||||||||||
Ratio of net investment income (loss) to average net assets | (0.80 | )%(e) | N/A | N/A | N/A | N/A | (0.75 | )% | ||||||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Assumes reinvestment of all distributions for the period. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
(d) | The ratio of expenses to average net assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratios would decrease by 0.01% for the year ended March 31, 2006. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $244,679. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. | |
ˆ | On June 1, 2010, the Fund’s former Class I Shares were reorganized into Class Y Shares. | |
** | Non-Annualized |
N/A = Not Applicable
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Small Cap Growth Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from March 31 to August 31.
Prior to June 1, 2010, the Fund operated as Van Kampen Small Cap Growth Fund (the “Acquired Fund”), an investment portfolio of Van Kampen Equity Trust. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is capital appreciation.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. |
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Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Redemption Fees — The Fund has a 2% redemption fee that is to be retained by the Fund to offset transaction costs and other expenses associated with short-term redemptions and exchanges. The fee, subject to certain exceptions, is imposed on certain redemptions or exchanges of shares within 31 days of purchase. The redemption fee is recorded as an increase in shareholder capital and is allocated among the share classes based on the relative net assets of each class. | |
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the |
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collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | ||
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
L. | Expense Offset Arrangements — The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the period ended August 31, 2010 and the years ended March 31, 2010 and 2009, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $0, $236 and $9,715, respectively. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .80% | ||
Next $500 million | 0 | .75% | ||
Over $1 billion | 0 | .70% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $1,442,770 and $6,682,320 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets for the period April 1, 2010 to May 31, 2010 and for the year ended March 31, 2010, respectively.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, and Class Y shares to 1.38%, 2.13%, 2.13% and 1.13%, respectively, of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the period ended August 31, 2010, the Adviser waived advisory fees of $21,841.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $12,017 and $68,300 to VKII for the period April 1, 2010 to May 31, 2010 and the year ended March 31, 2010, respectively. For the period ended August 31, 2010 and the year ended March 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
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Prior to the Reorganization, under a legal services agreement, VKII provided legal services to the Acquired Fund. Pursuant to such agreement, the Acquired Fund paid $11,582 and $36,300 to VKII for the period April 1, 2010 to May 31, 2010 and the year ended March 31, 2010, respectively.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended August 31, 2010, IIS was paid $581,905 for providing such services. Prior to the Reorganization, the Acquired Fund paid $103,404 and approximately $494,000 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent, for the period April 1, 2010 to May 31, 2010 and for the year ended March 31, 2010, respectively. For the period ended August 31, 2010 and the year ended March 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares and Class C shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $455,620 and $2,117,156 to VKFI for the period April 1, 2010 to May 31, 2010 and the year ended March 31, 2010, respectively.
For the period ended August 31, 2010 and the year ended March 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $8,873 in front-end sales commissions from the sale of Class A shares and $644, $7,057 and $2,650 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period April 1, 2010 to May 31, 2010, VKFI retained $19,613 in front-end sales commissions from the sale of Class A shares and $10,839, for CDSC imposed on redemptions by shareholders. For the year ended March 31, 2010, VKFI retained approximately $120,500 in front-end sales commissions from the sale of Class A shares and approximately $61,100, for CDSC imposed on redemptions by shareholders.
The Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of Van Kampen, totaling $30,080 and $564,616 for the period April 1, 2010 to May 31, 2010 and the year ended March 31, 2010, respectively.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan
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and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended August 31, 2010, the Fund paid legal fees of $0 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. For the period April 1, 2010 to May 31, 2010, the Acquired Fund recognized expenses of $6,396 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund. For the year ended March 31, 2010, the Acquired Fund recognized expenses of $26,850 representing legal services provided by Skadden.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Period Ended August 31, 2010 and the Years Ended March 31, 2010 and March 31, 2009:
There were no ordinary income or long-term distributions during the period ended August 31, 2010 and the years ended March 31, 2010 and March 31, 2009.
Tax Components of Net Assets at Period-End:
August 31, 2010 | ||||
Undistributed ordinary income | $ | -0- | ||
Net unrealized appreciation — investments | 3,519,478 | |||
Capital loss carryforward | (36,401,316 | ) | ||
Shares of beneficial interest | 996,863,305 | |||
Total net assets | $ | 963,981,467 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $36,401,316 of capital loss carryforward in the fiscal year ending August 31, 2011.
The Fund utilized $67,017,288 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 36,401,316 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund from April 1, 2010 to August 31, 2010 was $625,793,753 and $665,916,355, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 75,273,651 | ||
Aggregate unrealized (depreciation) of investment securities | (71,754,173 | ) | ||
Net unrealized appreciation of investment securities | $ | 3,519,478 | ||
Cost of investments for tax purposes is $1,014,139,112. |
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NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, undistributed net investment income (loss) was increased by $4,845,550, undistributed net realized gain (loss) was decreased by $726 and shares of beneficial interest decreased by $4,844,824. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
For the five months ended | For the year ended March 31, | |||||||||||||||||||||||
August 31, 2010(a) | 2010 | 2009 | ||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
Sales: | ||||||||||||||||||||||||
Class A | 12,491,916 | (b) | $ | 117,534,320 | (b) | 46,177,393 | $ | 374,644,838 | 44,536,423 | $ | 388,680,396 | |||||||||||||
Class B | 160,701 | 1,436,516 | 600,025 | 4,541,319 | 962,362 | 8,307,076 | ||||||||||||||||||
Class C | 417,676 | 3,715,035 | 2,604,739 | 19,506,872 | 3,243,039 | 27,265,519 | ||||||||||||||||||
Class Y | 2,430,630 | 23,295,049 | 21,184,423 | 175,208,673 | 10,009,228 | 88,241,549 | ||||||||||||||||||
Total Sales | 15,500,923 | $ | 145,980,920 | 70,566,580 | $ | 573,901,702 | 58,751,052 | $ | 512,494,540 | |||||||||||||||
Repurchases:(c) | ||||||||||||||||||||||||
Class A | (11,170,029 | ) | $ | (103,884,733 | ) | (26,403,632 | ) | $ | (221,138,510 | ) | (17,778,305 | ) | $ | (150,526,244 | ) | |||||||||
Class B | (375,529 | )(b) | (3,330,797 | )(b) | (1,417,790 | ) | (10,894,866 | ) | (2,034,594 | ) | (16,191,623 | ) | ||||||||||||
Class C | (775,941 | ) | (6,746,780 | ) | (1,630,764 | ) | (12,662,550 | ) | (1,659,017 | ) | (12,996,548 | ) | ||||||||||||
Class Y | (7,352,354 | ) | (69,486,105 | ) | (6,790,411 | ) | (57,773,753 | ) | (4,855,719 | ) | (40,302,357 | ) | ||||||||||||
Total Repurchases | (19,673,853 | ) | $ | (183,448,415 | ) | (36,242,597 | ) | $ | (302,469,679 | ) | (26,327,635 | ) | $ | (220,016,772 | ) | |||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 30% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Includes automatic conversion of 225,007 Class B shares into 210,988 Class A shares at a value of $1,929,978. | |
(c) | Net of redemption fees of $7,585 allocated among the classes based on relative net assets of each class for the period ended August 31, 2010. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 10—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Van Kampen Small Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Small Cap Growth Fund (formerly known as Van Kampen Small Cap Growth Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended March 31, 2010 and prior were audited by other independent auditors whose report dated May 18, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio3 | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 975.45 | 6.62 | $ | 1,018.50 | 6.77 | 1.33 | % | ||||||||||||||||||||
B | 1,000.00 | 972.65 | 8.05 | 1,017.04 | 8.24 | 1.62 | % | |||||||||||||||||||||||
C | 1,000.00 | 971.22 | 10.28 | 1,014.77 | 10.51 | 2.08 | % | |||||||||||||||||||||||
Y | 1,000.00 | 975.72 | 5.33 | 1,019.81 | 5.45 | 1.08 | % | |||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
3 | The expense ratios reflect an expense waiver. The Class B expense ratio reflects actual 12b-1 fees of less than 1%. |
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Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen Small Cap Growth Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the
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terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Small Cap Growth Fund was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 61,151,492 | 1,144,590 | 4,173,109 | 0 |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
VK-SCG-AR-1 Invesco Distributors, Inc.
Table of Contents
Invesco California Tax-Free Income Fund
Annual Report to Shareholders August 31, 2010
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
13 | Financial Statements | |
15 | Notes to Financial Statements | |
22 | Financial Highlights | |
26 | Auditor's Report | |
27 | Fund Expenses | |
28 | Approval of Investment Advisory and Sub-Advisory Agreements | |
30 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco California Tax-Free Income Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco California Tax-Free Income Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
All share classes of Invesco California Tax-Free Income Fund at net asset value (NAV) posted positive returns during the eight-month reporting period ended August 31, 2010. The Fund’s Class A shares at net asset value (NAV) underperformed the Fund’s broad market and style-specific benchmark, the Barclays Capital California Municipal Index, and slightly underperformed the Fund’s peer group index, the Lipper California Municipal Debt Funds Index. The Fund’s underweight exposure to the more than 20-year maturity portion of the yield curve and an underweight position in state general obligation bonds, were the primary detractors from performance versus the Barclays Capital California Municipal Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 8.01 | % | ||
Class B Shares | 8.06 | |||
Class C Shares | 7.72 | |||
Class Y Shares | 8.16 | |||
Barclays Capital California Municipal Index▼ (Broad Market/Style-Specific Index) | 8.75 | |||
Lipper CA Municipal Debt Funds Index■ (Peer Group Index) | 8.11 |
▼ | Invesco, Barclays Capital; ■ Lipper Inc. |
How we invest
The Fund will normally invest at least 80% of its assets in securities that pay interest exempt from federal and California state income taxes. We generally invest the Fund’s assets in investment grade California municipal obligations. These municipal obligations will have the following ratings at the time of purchase:
n | Municipal bonds–within the four highest grades by Moody’s Investors Service, Inc. (Moody’s), Standard & Poor’s Ratings Group (S&P) or Fitch Ratings (Fitch) |
n | Municipal notes–within the two highest grades or, if not rated, have outstanding bonds within the four highest grades by Moody’s, S&P or Fitch | |
n | Municipal commercial paper–within the highest grade by Moody’s, S&P or Fitch |
We may also invest in unrated securities, which we judge to be of comparable quality to the securities described above. Additionally, we may invest up to 5% of the Fund’s net assets in municipal obligations rated below investment grade (commonly known as junk bonds) or, if unrated, of comparable quality as we determine.
We buy and sell California municipal securities with a view toward seeking a high level of current income exempt from federal and California income taxes or other local income taxes. In selecting securities for purchase and sale, we use our research capabilities to identify and monitor investment opportunities. In conducting research and analysis, we consider a number of factors, including general market and economic conditions and credit and interest rate risk.
Portfolio securities are typically sold when our assessments of any of these factors materially change. Measures of interest rate risk that we evaluate include duration, coupon, maturity and call protection. Measures of credit risk evaluated include individual issuer analysis, sector weightings, geographic distribution and quality spreads.
Market conditions and your Fund
Market conditions during the eight-month reporting period were influenced by two broad themes: private sector recovery and concerns over sovereign creditworthiness. In the U.S. and most of the developed world, a gradual and somewhat lackluster recovery continued, with central banks keeping interest rates at low levels and with few of them withdrawing their quantitative easing measures. This has helped private sector companies improve their balance sheets and earnings following the global financial crisis that began to dissipate in early 2009. Recently, however, investor skepticism of global governments’ abilities to retire huge amounts of debt
Portfolio Composition†
By credit quality, based on total investments
AAA | 31.9 | % | ||
AA | 5.5 | |||
AA- | 6.1 | |||
A+ | 6.1 | |||
A | 13.6 | |||
A- | 3.1 | |||
BBB+ | 1.6 | |||
BBB | 4.2 | |||
BBB- | 6.0 | |||
BB- | 0.5 | |||
N/A | 10.8 | |||
NR | 11.4 | |||
Cash | (0.8 | ) |
Top 10 Fixed Income Issuers*
1. | Long Beach Bond Finance Authority | 6.8 | % | |||||
2. | California State Department of Water Resources | 4.1 | ||||||
3. | Los Angeles Department of Water & Power | 3.9 | ||||||
4. | City of San Jose | 3.1 | ||||||
5. | University of California | 2.7 | ||||||
6. | City & County of San Francisco | 2.6 | ||||||
7. | County of Madera | 2.5 | ||||||
8. | Antelope Valley Healthcare District | 2.2 | ||||||
9. | City of Los Angeles | 1.7 | ||||||
10. | State of California | 1.7 |
Total Net Assets | $325.3 million | |
Total Number of Holdings* | 130 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding cash equivalent holdings. |
† | Source: Standard and Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “Non-Rated” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Standard and Poor’s rating methodology, please visit www.standardandpoors.com and select ‘Understanding Ratings’ under Rating Resources on the homepage. |
4 | Invesco California Tax-Free Income Fund |
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without affecting economic growth rates caused sovereign debt distress (especially for Greece and other southern euro zone countries) and became a focal point of investor concern in the first half of 2010.
In the U.S., economic recovery was present, although uneven and possibly slowing, as stubbornly high unemployment continued to weigh on the economy.1 Real gross domestic product (GDP), the broadest measure of overall U.S. economic activity, increased at an annual rate of 1.7% in the second quarter of 2010. In the first quarter, real GDP increased 3.7%.1 The U.S. Federal Reserve (the Fed) maintained a very accommodative monetary policy throughout the period, with the federal funds target rate unchanged in its range of zero to 0.25%.2 The Fed recently described its view of the U.S. economy: “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”2 Consequently, it was widely expected that the Fed would continue to keep rates low for an extended period.
Sector performance was driven by quality spread tightening, largely a result of continued flows into the municipal market combined with less tax-exempt issuance. As a result, BBB-rated and lower credit quality sectors outperformed. Fund flows have continued to remain strong after an exceptional 2009. In addition, new issuance during the reporting period was about 1.5% ahead of last year’s pace, at $261.0 billion versus 257.3 billion.3 However, approximately 30% of supply since the beginning of the year was in the form of taxable Build American Bonds.3
While many states are currently facing budgetary challenges, California has perhaps received more press than most. The state still benefits from its large and diverse economic base and above-average wealth levels. However, its large exposure to the housing crisis, falling tax revenues and recent budgetary shortfalls pose considerable challenges. Although the rating agencies have downgraded the state’s credit rating and the market has reacted accordingly, the negative impact has been tempered somewhat by the increasing issuance of taxable Build America Bonds and the continued decrease in supply of tax-exempt debt.
On the whole, the Fund generated positive absolute returns for the period. In terms of yield curve positioning, an overweight in 12- to 20-year bonds contributed to returns, while an underweight in the 20-plus year end of the curve detracted from returns on a
relative basis versus the Barclays Capital California Municipal Index.
As discussed earlier, during the reporting period, lower rated tax-exempt bonds experienced significant price increases relative to higher quality issues. An overweight exposure to BBB and non-rated bonds was a positive contributor to relative and absolute Fund returns.
At the sector level, the Fund’s underweight position in the tax-supported sector, specifically state general obligation bonds, and, to a lesser extent, the dedicated tax sector, was the primary detractor on a relative basis. At the industry level, we were overweight in hospital revenue bonds, which contributed to positive relative returns. However, we continued to monitor the health care sector in light of recent health care reform, and we continued to diversify out of the sector by selling weaker issuers on analyst recommendations, including swapping deep discount hospital bonds for new issue higher coupon bonds and university revenue bonds.
Our overweight exposure to tobacco over the reporting period also contributed to relative performance. However, due to the gradual decline in credit fundamentals, we reduced our exposure to the tobacco industry. In addition, our overweight exposure to toll roads contributed to relative performance.
We use inverse floating rate issues in Invesco California Tax-Free Income Fund to help manage duration, yield curve exposure and credit exposure and to potentially enhance yield. Over the reporting period, the exposure to inverse floating rate issues within the Fund contributed positively to Fund return.
Thank you for investing in Invesco California Tax-Free Income Fund and for sharing our long-term investment horizon.
1 Bureau of Economic Analysis
2 U.S. Federal Reserve
3 Barclays Capital
2 U.S. Federal Reserve
3 Barclays Capital
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Thomas Byron
Portfolio manager, is manager of Invesco California Tax-Free Income Fund. Mr. Byron joined Invesco in 2010. He earned a B.S. in finance from Marquette University and an M.B.A. in finance from DePaul University.
Robert Stryker
Chartered Financial Analyst, portfolio manager, is manager of Invesco California Tax-Free Income Fund. Mr. Stryker joined Invesco in 2010. He earned a B.S. in finance from the University of Illinois, Chicago.
Robert Wimmel
Portfolio manager, is manager of Invesco California Tax-Free Income Fund. Mr. Wimmel joined Invesco in 2010. Mr. Wimmel earned a B.A. in anthropology from the University of Cincinnati and an M.A. in economics from the University of Illinois, Chicago.
5 | Invesco California Tax-Free Income Fund |
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Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class
Fund and index data from 8/31/00
Past performance cannot guarantee future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
6 | Invesco California Tax-Free Income Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable
sales charges
sales charges
Class A Shares | ||||||||
Inception (7/28/97) | 4.07 | % | ||||||
10 | Years | 4.08 | ||||||
5 | Years | 2.65 | ||||||
1 | Year | 6.64 | ||||||
Class B Shares | ||||||||
Inception (7/11/84) | 6.47 | % | ||||||
10 | Years | 4.59 | ||||||
5 | Years | 3.38 | ||||||
1 | Year | 6.92 | ||||||
Class C Shares | ||||||||
Inception (7/28/97) | 3.96 | % | ||||||
10 | Years | 4.04 | ||||||
5 | Years | 3.14 | ||||||
1 | Year | 10.38 | ||||||
Class Y Shares | ||||||||
Inception (7/28/97) | 4.72 | % | ||||||
10 | Years | 4.82 | ||||||
5 | Years | 3.91 | ||||||
1 | Year | 12.23 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco California Tax-Free Income Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco California Tax-Free Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||||
Inception (7/28/97) | 3.80 | % | ||||||
10 | Years | 3.98 | ||||||
5 | Years | 1.90 | ||||||
1 | Year | 6.44 | ||||||
Class B Shares | ||||||||
Inception (7/11/84) | 6.34 | % | ||||||
10 | Years | 4.48 | ||||||
5 | Years | 2.65 | ||||||
1 | Year | 6.71 | ||||||
Class C Shares | ||||||||
Inception (7/28/97) | 3.68 | % | ||||||
10 | Years | 3.93 | ||||||
5 | Years | 2.38 | ||||||
1 | Year | 10.15 | ||||||
Class Y Shares | ||||||||
Inception (7/28/97) | 4.44 | % | ||||||
10 | Years | 4.71 | ||||||
5 | Years | 3.16 | ||||||
1 | Year | 11.90 |
results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 0.85%, 0.84%, 1.35% and 0.60%, respectively.1 The total annual Fund operating
expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 0.87%, 0.86%, 1.37% and 0.62%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 4.75% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco California Tax-Free Income Fund |
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Invesco California Tax-Free Income Fund’s investment objective is to provide a high level of current income exempt from federal and California income tax, consistent with the preservation of capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The Fund may invest up to 20% of its total assets in securities subject to the federal alternative minimum tax. | |
n | Credit risk refers to the possibility that the issuer of a security will be unable or unwilling to make interest payments and/or repay the principal on its debt. In the case of revenue bonds, notes or commercial paper, for example, the credit risk is the possibility that the user fees from a project or other specified revenue sources are insufficient to meet interest and/or principal payment obligations. Private activity bonds used to finance projects, such as industrial development and pollution control, may also be negatively impacted by the general credit of the user of the project. | |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration. | |
n | The inverse floating rate municipal obligations in which the Fund may invest include derivative instruments such as residual interest bonds (RIBs) or tender option bonds (TOBs). Such instruments are typically created by a special purpose trust that holds long-term fixed rate bonds and sells two classes of beneficial interests: short-term floating rate interests, |
which are sold to third-party investors, and inverse floating residual interests, which are purchased by the Fund. Their short-term floating rate interests have first priority on the cash flow from the bond held by the special purpose trust and the Fund is paid the residual cash flow from the bond held by the special purpose trust. | ||
n | Leases and installment purchase or conditional sale contract (which may provide for title to be leased asset to pass eventually to the issuer) have developed as a means for governmental issuers to acquire property and equipment without the necessity of complying with the constitutional and statutory requirements generally applicable for the issuance of debt. Certain lease obligations contain non-appropriation for the issuance of debt. Certain lease obligations contain non-appropriation clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for that purpose by the appropriate legislative body on an annual or other periodic basis. Consequently, continued lease payments on those lease obligations containing non-appropriation clauses are dependent on future legislative actions. If these legislative actions do not occur, the holders of the lease obligation may experience difficulty in exercising their rights, including deposition of the property. | |
n | The issuers of private activity bonds in which the Fund may invest may be negatively impacted by conditions affecting either the general credit of the user of the private activity project or the project itself. Conditions such as regulatory and environmental restrictions and economic downturns may lower the need for these facilities and the ability of the uses of the project to pay for the facilities. This could cause a decline in the Fund’s value. |
About indexes used in this report
n | The Barclays Capital California Municipal Index is an index of California investment grade municipal bonds. | |
n | The Lipper CA Municipal Debt Funds Index is an unmanaged index considered representative of California municipal debt funds tracked by Lipper. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | CLFAX | |
Class B Shares | CLFBX | |
Class C Shares | CLFCX | |
Class Y Shares | CLFDX |
8 | Invesco California Tax-Free Income Fund |
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Schedule of Investments
August 31, 2010
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Municipal Obligations–(103.4%) | ||||||||||||||||
California–(98.9%) | ||||||||||||||||
Adelanto Public Utility Authority, Ser 2009 A | 6.75 | % | 07/01/39 | $ | 1,500 | $ | 1,581,885 | |||||||||
Alameda County Joint Powers Authority, Ser 2008 A (AGM)(a) | 5.00 | % | 12/01/25 | 750 | 813,450 | |||||||||||
Alameda County Joint Powers Authority, Ser 2008 A (AGM)(a) | 5.00 | % | 12/01/26 | 1,325 | 1,424,865 | |||||||||||
Alvord Unified School District, Ser 2008 A (AGM)(a) | 5.00 | % | 08/01/28 | 1,590 | 1,714,274 | |||||||||||
Anaheim Public Financing Authority, Ser 1997 C (AGM)(a) | 6.00 | % | 09/01/16 | 4,000 | 4,585,880 | |||||||||||
Antelope Valley Healthcare District, Refg Ser 1997 A (AGM)(a) | 5.20 | % | 01/01/20 | 7,000 | 7,006,440 | |||||||||||
Bay Area Toll Authority, San Francisco Bay Area Ser 2009 F-1(b) | 5.25 | % | 04/01/26 | 4,685 | 5,417,875 | |||||||||||
Bay Area Toll Authority, San Francisco Bay Area Ser 2009 F-1(b) | 5.25 | % | 04/01/29 | 5,205 | 5,914,389 | |||||||||||
Bay Area Toll Authority, San Francisco Bay Area Toll Bridge Ser 2008 F-1 | 5.00 | % | 04/01/39 | 2,500 | 2,674,725 | |||||||||||
Beverly Hills Unified School District, Election of 2008 Ser 2009(c) | 0.00 | % | 08/01/26 | 1,465 | 727,109 | |||||||||||
Beverly Hills Unified School District, Election of 2008 Ser 2009(c) | 0.00 | % | 08/01/32 | 3,045 | 1,031,646 | |||||||||||
California County Tobacco Securitization Agency, Los Angeles County Securitization Corp. Ser 2006(d) | 0.00 | % | 06/01/28 | 5,000 | 4,064,650 | |||||||||||
California Educational Facilities Authority, California College of the Arts Ser 2005 | 5.00 | % | 06/01/35 | 2,000 | 1,807,960 | |||||||||||
California Educational Facilities Authority, Pitzer College Ser 2005 A | 5.00 | % | 04/01/35 | 2,000 | 2,007,640 | |||||||||||
California Educational Facilities Authority, Pitzer College Ser 2009 | 6.00 | % | 04/01/40 | 2,000 | 2,230,540 | |||||||||||
California Educational Facilities Authority, University of San Diego Ser 1998 (AMBAC)(a) | 5.00 | % | 10/01/22 | 5,000 | 5,006,000 | |||||||||||
California Health Facilities Financing Authority, Cedars-Sinai Medical Center Ser 2005 | 5.00 | % | 11/15/27 | 2,000 | 2,051,420 | |||||||||||
California Health Facilities Financing Authority, Childrens Hospital, Ser 2010 A (AGM)(a) | 5.25 | % | 07/01/38 | 1,250 | 1,291,125 | |||||||||||
California Health Facilities Financing Authority, Kaiser Permanente Ser 2006 A | 5.25 | % | 04/01/39 | 2,000 | 2,030,820 | |||||||||||
California Health Facilities Financing Authority, Scripps Memorial Hospital Ser 2010 A | 5.00 | % | 11/15/36 | 3,500 | 3,585,365 | |||||||||||
California Infrastructure & Economic Development Bank, California Science Center Phase II Ser 2006 C (NATL-RE & FGIC)(a) | 5.00 | % | 05/01/31 | 2,000 | 1,960,720 | |||||||||||
California Infrastructure & Economic Development Bank, Kaiser Hospital Assistance Ser 2001 A | 5.55 | % | 08/01/31 | 5,000 | 5,114,350 | |||||||||||
California Municipal Finance Authority, American Heritage Educational Foundation Ser 2006 A | 5.25 | % | 06/01/26 | 1,000 | 974,820 | |||||||||||
California Municipal Finance Authority, Community Hospitals Central California (COPs) | 5.00 | % | 02/01/20 | 2,055 | 2,113,937 | |||||||||||
California Municipal Finance Authority, Eisenhower Med Ctr Ser 2010 A | 5.50 | % | 07/01/30 | 500 | 511,780 | |||||||||||
California Municipal Finance Authority, Eisenhower Med Ctr Ser 2010 A | 5.75 | % | 07/01/40 | 1,500 | 1,538,370 | |||||||||||
California Pollution Control Financing Authority, Solid Waste Disposal Ser 2002 A (AMT) | 5.00 | % | 01/01/22 | 2,000 | 2,045,440 | |||||||||||
California State Department of Water Resources, Ser 2003 Y (NATL-RE & FGIC)(a) | 5.00 | % | 12/01/25 | 12,730 | 13,425,949 | |||||||||||
California State Public Works Board, Department of Corrections Refg Ser 1993 A (AMBAC)(a) | 5.00 | % | 12/01/19 | 2,000 | 2,112,980 | |||||||||||
California State Public Works Board, Department of Mental Health Coaling Ser 2004 A | 5.00 | % | 06/01/25 | 515 | 522,251 | |||||||||||
California State University, Systemwide Ser 2008 A (AGM)(a) | 5.00 | % | 11/01/39 | 3,000 | 3,130,770 | |||||||||||
California Statewide Communities Development Authority, Adventist Health Ser 2005 A | 5.00 | % | 03/01/30 | 5,000 | 5,058,200 | |||||||||||
California Statewide Communities Development Authority, American Baptist Homes West Ser 2010 | 6.25 | % | 10/01/39 | 1,500 | 1,542,780 | |||||||||||
California Statewide Communities Development Authority, Baptist University Ser 2007 A | 5.40 | % | 11/01/27 | 1,785 | 1,629,991 | |||||||||||
California Statewide Communities Development Authority, Cedars-Sinai Medical Center Ser 1992 (COPs) | 6.50 | % | 08/01/12 | 570 | 599,828 | |||||||||||
California Statewide Communities Development Authority, Sutter Health Ser 2005 A | 5.00 | % | 11/15/43 | 1,000 | 1,001,700 | |||||||||||
Chino Basin Regional Financing Authority, Ser A (AMBAC)(a) | 5.00 | % | 11/01/33 | 725 | 755,523 | |||||||||||
City & County of San Francisco, Laguna Honda Hospital Ser 2005 I (AGM)(a) | 5.00 | % | 06/15/30 | 8,000 | 8,320,000 | |||||||||||
City of Alhambra, Atherton Baptist Homes Ser 2010 A | 7.625 | % | 01/01/40 | 1,575 | 1,690,715 | |||||||||||
City of Duarte, Ser 1999 A (COPs) | 5.25 | % | 04/01/19 | 3,000 | 3,022,320 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco California Tax-Free Income Fund
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Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
City of Los Angeles, Ser 2004 A (NATL-RE)(a) | 5.00 | % | 09/01/24 | $ | 5,000 | $ | 5,627,200 | |||||||||
City of Los Angeles, Wastewater Refg Ser 2003 B (AGM)(a) | 5.00 | % | 06/01/22 | 5,000 | 5,445,450 | |||||||||||
City of San Jose, Airport Ser 2001 (NATL-RE & FGIC)(a) | 5.00 | % | 03/01/25 | 10,000 | 10,067,000 | |||||||||||
City of Vernon, Ser 2009 A | 5.125 | % | 08/01/21 | 2,000 | 2,163,700 | |||||||||||
Clovis Unified School District, Election of 2004 Ser A (NATL-RE & FGIC)(a)(c) | 0.00 | % | 08/01/29 | 735 | 266,283 | |||||||||||
Corona-Norco Unified School District, Election of 2006 Ser 2009 B (AGC)(a)(c) | 0.00 | % | 08/01/28 | 360 | 136,660 | |||||||||||
Corona-Norco Unified School District, Election of 2006 Ser B (AGC)(a)(c) | 0.00 | % | 08/01/24 | 1,000 | 502,530 | |||||||||||
Corona-Norco Unified School District, Election of 2006 Ser B (AGC)(a)(c) | 0.00 | % | 08/01/25 | 1,000 | 470,420 | |||||||||||
Corona-Norco Unified School District, Election of 2006 Ser B (AGC)(a)(c) | 0.00 | % | 08/01/26 | 1,525 | 666,349 | |||||||||||
Corona-Norco Unified School District, Election of 2006 Ser B (AGC)(a)(c) | 0.00 | % | 08/01/27 | 1,500 | 611,025 | |||||||||||
County of Madera, Valley Children’s Hospital Ser 1995 (COPs) (NATL-RE)(a) | 6.50 | % | 03/15/15 | 7,500 | 8,136,675 | |||||||||||
County of Sacramento, Airport Systems Ser 2010 | 5.00 | % | 07/01/40 | 2,200 | 2,265,340 | |||||||||||
County of San Diego, Burnham Institute for Medical Research Ser 2006 (COP) | 5.00 | % | 09/01/34 | 2,000 | 1,823,000 | |||||||||||
Eden Township Healthcare District, Ser 2010 (COPs) | 6.125 | % | 06/01/34 | 1,000 | 1,027,580 | |||||||||||
El Segundo Unified School District, Election of 2008 Ser 2009 A(c) | 0.00 | % | 08/01/33 | 4,430 | 1,194,993 | |||||||||||
Fontana Public Financing Authority, Tax Allocation Ser 2003 A (AMBAC)(a) | 5.375 | % | 09/01/25 | 1,500 | 1,520,400 | |||||||||||
Fontana Unified School District, Ser 2008 B (AGM)(a)(c) | 0.00 | % | 02/01/33 | 9,445 | 2,554,022 | |||||||||||
Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1999(c) | 0.00 | % | 01/15/23 | 5,000 | 5,134,950 | |||||||||||
Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1999 (NATL-RE)(a) | 5.125 | % | 01/15/19 | 4,000 | 4,005,120 | |||||||||||
Gilroy Unified School District, Election of 2008 Ser 2009 A (AGC)(a)(c) | 0.00 | % | 08/01/29 | 5,350 | 1,892,402 | |||||||||||
Gilroy Unified School District, Election of 2008 Ser 2009 A (AGC)(a)(c) | 0.00 | % | 08/01/31 | 3,650 | 1,099,380 | |||||||||||
Golden State Tobacco Securitization Corp., Enhanced Asset Backed Ser 2005 A | 5.00 | % | 06/01/45 | 2,500 | 2,415,900 | |||||||||||
Golden State Tobacco Securitization Corp., Enhanced Asset Backed Ser 2007 A-1 | 5.125 | % | 06/01/47 | 4,000 | 2,706,680 | |||||||||||
Golden State Tobacco Securitization Corp., Enhanced Asset Backed Ser 2007 A-1 | 5.75 | % | 06/01/47 | 4,425 | 3,314,635 | |||||||||||
Grossmont Union High School District, Ser 2006 (NATL-RE)(a)(c) | 0.00 | % | 08/01/24 | 6,750 | 3,443,175 | |||||||||||
Huntington Beach Union High School District, Ser 2004 (AGM)(a) | 5.00 | % | 08/01/27 | 1,750 | 1,895,757 | |||||||||||
Independent Cities Lease Finance Authority, San Juan Mobile Estates Ser 2006 A | 5.125 | % | 05/15/41 | 2,000 | 1,768,340 | |||||||||||
Indio Redevelopment Agency, Tax Allocation Ser 2008 A | 5.25 | 08/15/27 | 780 | % | 800,116 | |||||||||||
Indio Redevelopment Agency, Tax Allocation Ser 2008 A | 5.25 | % | 08/15/28 | 470 | 479,015 | |||||||||||
Irvine Unified School District, Community Facilities District | 6.70 | % | 09/01/35 | 1,000 | 1,055,150 | |||||||||||
Kern County Water Agency Improvement District No. 4, Ser 2008 A (COP) (AGC)(a) | 5.00 | % | 05/01/28 | 1,700 | 1,809,463 | |||||||||||
Long Beach Bond Finance Authority, Ser 1992 (AMBAC)(a) | 6.00 | % | 11/01/17 | 20,000 | 22,229,000 | |||||||||||
Los Angeles Department of Airports, Los Angeles International Airport Ser A | 5.00 | % | 05/15/35 | 1,500 | 1,577,640 | |||||||||||
Los Angeles Department of Water & Power, Ser 2001 A | 5.125 | % | 07/01/41 | 3,000 | 3,022,740 | |||||||||||
Los Angeles Department of Water & Power, Ser 2001 A-1 (AGM)(a)(e) | 5.25 | % | 07/01/11 | 935 | 974,738 | |||||||||||
Los Angeles Department of Water & Power, Ser 2001 A-1 (AGM)(a) | 5.25 | % | 07/01/22 | 12,365 | 12,804,081 | |||||||||||
Los Angeles Department of Water & Power, Ser 2008 A-1 | 5.25 | % | 07/01/38 | 2,000 | 2,182,740 | |||||||||||
Menifee Union School District, 2008 Election Ser C (AGC)(a)(c) | 0.00 | % | 08/01/35 | 940 | 217,572 | |||||||||||
Menifee Union School District, Election of 2008 Ser C (AGC)(a)(c) | 0.00 | % | 08/01/37 | 1,050 | 211,082 | |||||||||||
Metropolitan Water District of Southern California, Ser B(b) | 5.00 | % | 07/01/27 | 8,585 | 9,811,711 | |||||||||||
Moorpark Unified School District, Election of 2008 Ser 2009 A (AGC)(a)(c) | 0.00 | % | 08/01/31 | 840 | 253,008 | |||||||||||
Oakland Joint Powers Financing Authority, Oakland Administration Buildings Refg 2008 B (AGC)(a) | 5.00 | % | 08/01/26 | 1,215 | 1,302,674 | |||||||||||
Oakland Joint Powers Financing Authority, Oakland Administration Buildings Ser 2008 B (AGC)(a) | 5.00 | % | 08/01/25 | 850 | 919,751 | |||||||||||
Palomar Pomerado Health, Ser 2009 (COPs) | 6.75 | % | 11/01/39 | 2,000 | 2,232,860 | |||||||||||
Patterson Joint Unified School District, 2008 Election Ser 2009 B (AGM)(a)(c) | 0.00 | % | 08/01/47 | 1,700 | 167,076 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco California Tax-Free Income Fund
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Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Patterson Joint Unified School District, 2008 Election Ser B (AGM)(a)(c) | 0.00 | % | 08/01/44 | $ | 6,250 | $ | 747,563 | |||||||||
Patterson Joint Unified School District, 2008 Election Ser B (AGM)(a)(c) | 0.00 | % | 08/01/45 | 6,715 | 754,430 | |||||||||||
Patterson Joint Unified School District, 2008 Election Ser B (AGM)(a)(c) | 0.00 | % | 08/01/46 | 7,050 | 741,660 | |||||||||||
Port of Oakland, Ser 2002 L (AMT) (NATL-RE & FGIC)(a)e) | 5.00 | % | 11/01/12 | 110 | 120,924 | |||||||||||
Port of Oakland, Ser 2002 L (AMT) (NATL-RE & FGIC)(a) | 5.00 | % | 11/01/21 | 890 | 907,337 | |||||||||||
Poway Unified School District, School Facilities Improvement District No. 07-1, 2008 Election Ser A(c) | 0.00 | % | 08/01/32 | 6,460 | 1,813,968 | |||||||||||
Poway Unified School District, Ser 2007 (AMBAC)(a) | 4.625 | % | 09/15/42 | 2,530 | 2,276,266 | |||||||||||
Roseville Joint Union High School District, Election of 2004 Ser 2007 C (AGM)(a)(c) | 0.00 | % | 08/01/24 | 2,515 | 1,363,859 | |||||||||||
Roseville Joint Union High School District, Election of 2004 Ser 2007 C (AGM)(a)(c) | 0.00 | % | 08/01/25 | 1,970 | 972,057 | |||||||||||
Roseville Joint Union High School District, Election of 2004 Ser 2007 C (AGM)(a)(c) | 0.00 | % | 08/01/26 | 1,350 | 621,743 | |||||||||||
Sacramento County Sanitation Districts Financing Authority, Ser D(f)(g) | 0.23 | % | 12/01/39 | 2,500 | 2,500,000 | |||||||||||
San Francisco City & County Airports Commission, San Francisco Int’l Airport Second Ser 2001 Refg Issue 27B (NATL-RE & FGIC)(a) | 5.125 | % | 05/01/26 | 5,000 | 5,048,200 | |||||||||||
San Joaquin Hills Transportation Corridor Agency, Toll Road Refg Ser 1997 A (NATL-RE)(a)(c) | 0.00 | % | 01/15/15 | 6,000 | 4,649,160 | |||||||||||
San Joaquin Hills Transportation Corridor Agency, Toll Road Senior Lien Ser 1993 | 5.00 | % | 01/01/33 | 2,000 | 1,651,340 | |||||||||||
Santa Monica Community College District, 2002 Election, Ser 2007 A (NATL-RE & FGIC)(a)(c) | 0.00 | % | 08/01/22 | 1,385 | 855,695 | |||||||||||
Santa Monica Community College District, 2002 Election, Ser 2007 A (NATL-RE & FGIC)(a)(c) | 0.00 | % | 08/01/23 | 1,385 | 807,372 | |||||||||||
Santa Monica Community College District, 2002 Election, Ser 2007 A (NATL-RE & FGIC)(a)(c) | 0.00 | % | 08/01/24 | 1,385 | 740,920 | |||||||||||
Santa Monica Community College District, 2002 Election, Ser 2007 A (NATL-RE & FGIC)(a)(c) | 0.00 | % | 08/01/25 | 1,380 | 691,132 | |||||||||||
School Facilities Financing Authority, Grant Joint Union High School District Ser 2008 A (AGM)(a)(c) | 0.00 | % | 08/01/30 | 1,745 | 553,409 | |||||||||||
School Facilities Financing Authority, Grant Joint Union High School District Ser 2008 A (AGM)(a)(c) | 0.00 | % | 08/01/31 | 2,040 | 601,351 | |||||||||||
School Facilities Financing Authority, Grant Joint Union High School District Ser 2008 A (AGM)(a)(c) | 0.00 | % | 08/01/32 | 6,395 | 1,748,201 | |||||||||||
Simi Valley Unified School District, Election of 2004 Ser 2007 C (AGM)(a)(c) | 0.00 | % | 08/01/28 | 3,480 | 1,312,517 | |||||||||||
Simi Valley Unified School District, Election of 2004 Ser 2007 C (AGM)(a)(c) | 0.00 | % | 08/01/30 | 2,765 | 875,869 | |||||||||||
Southern California Public Power Authority, Mead-Adelanto 1994 Ser A (AMBAC)(a)(h) | 8.565 | % | 07/01/15 | 3,500 | 4,638,830 | |||||||||||
Southern California Public Power Authority, Mead-Phoenix 1994 Ser A (AMBAC)(a)(h) | 8.565 | % | 07/01/15 | 2,500 | 3,313,450 | |||||||||||
Southern California Public Power Authority, Ser A(f)(g) | 0.24 | % | 07/01/20 | 1,400 | 1,400,000 | |||||||||||
Southern California Public Power Authority, Windy Flats Project Ser 2010-1 | 5.00 | % | 07/01/30 | 1,500 | 1,652,295 | |||||||||||
State of California, Various Purpose Dtd 04/01/09 | 5.75 | % | 04/01/31 | 5,000 | 5,536,400 | |||||||||||
Tobacco Securitization Authority of Northern California, Sacramento County Tobacco Securitization Corp. Ser 2005 A-1 | 5.50 | % | 06/01/45 | 2,150 | 1,529,360 | |||||||||||
Tobacco Securitization Authority of Northern California, Sacramento County Tobacco Securitization Corp. Ser 2006 A-1 | 5.00 | % | 06/01/37 | 3,000 | 2,326,200 | |||||||||||
Tustin Unified School District, No. 2002-1 Election of 2002 Ser 2008 C (AGM)(a) | 5.00 | % | 06/01/28 | 1,750 | 1,898,907 | |||||||||||
Twin Rivers Unified School District, Ser 2009 (BANs)(c) | 0.00 | % | 04/01/14 | 1,700 | 1,556,571 | |||||||||||
University of California, Ser 2007 J (AGM)(a) | 4.50 | % | 05/15/31 | 8,500 | 8,703,575 | |||||||||||
University of California, Ser 2009 E | 5.50 | % | 05/15/27 | 2,500 | 2,755,500 | |||||||||||
University of California, Ser 2009 Q(b)(i) | 5.00 | % | 05/15/34 | 920 | 994,465 | |||||||||||
Walnut Energy Center Authority, Ser 2010 A | 5.00 | % | 01/01/35 | 2,000 | 2,095,600 | |||||||||||
Yosemite Community College District, Election of 2004 Ser 2008 C (AGM)(a)(c) | 0.00 | % | 08/01/24 | 4,685 | 2,540,629 | |||||||||||
321,542,620 | ||||||||||||||||
Guam–(0.2%) | ||||||||||||||||
Territory of Guam Section 30, Ser A | 5.625 | % | 12/01/29 | 660 | 701,752 | |||||||||||
Puerto Rico–(3.2%) | ||||||||||||||||
Puerto Rico Electric Power Authority, Ser 2007 TT | 5.00 | % | 07/01/37 | 2,000 | 2,049,860 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco California Tax-Free Income Fund
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Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Puerto Rico–(continued) | ||||||||||||||||
Puerto Rico Public Buildings Authority, Ser 2002 D (AMBAC)(a)(d)(e) | 0.00 | % | 07/01/17 | $ | 3,680 | $ | 4,055,691 | |||||||||
Puerto Rico Public Buildings Authority, Ser 2002 D (AMBAC)(a)(d)(e) | 0.00 | % | 07/01/31 | 1,320 | 1,143,965 | |||||||||||
Puerto Rico Sales Tax Financing Corp., Ser 2009 A(e) | 5.00 | % | 08/01/11 | 1,685 | 1,758,634 | |||||||||||
Puerto Rico Sales Tax Financing Corp., Ser 2010 C | 5.00 | % | 08/01/35 | 1,500 | 1,556,970 | |||||||||||
10,565,120 | ||||||||||||||||
Virgin Islands–(1.1%) | ||||||||||||||||
Virgin Islands Public Finance Authority, Matching Fund Loan Diago A | 6.625 | % | 10/01/29 | 1,675 | 1,899,014 | |||||||||||
Virgin Islands Public Finance Authority, Ser 2010 A | 5.00 | % | 10/01/25 | 1,600 | 1,688,112 | |||||||||||
3,587,126 | ||||||||||||||||
TOTAL INVESTMENTS–103.4% (Cost $321,163,631) | 336,396,618 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–0.6% | 1,819,703 | |||||||||||||||
Floating Rate Note and Dealer Trusts Obligations Related to Securities Held–(4.0%) | ||||||||||||||||
Notes with interest rates of 0.27% to 0.31% at 08/31/10 and contractual maturities of collateral ranging from 05/01/28 to 06/15/38 (See Note 11)(j) | (12,930,000 | ) | ||||||||||||||
NET ASSETS–100.0% | $ | 325,286,321 | ||||||||||||||
Investment Abbreviations:
AGC | – Assured Guaranty Corp. | |
AGM | – Assured Guaranty Municipal Corp. | |
AMBAC | – AMBAC Assurance Corp. | |
AMT | – Alternative Minimum Tax | |
BANs | – Bond Anticipation Notes | |
COP | – Certificates of Participation | |
FGIC | – Financial Guaranty Insurance Co. | |
NATL-RE | – National Public Finance Guarantee Corp. |
Notes to Schedule of Investments:
(a) | Principal and/or interest payments are secured by the bond insurance company listed. | |
(b) | Underlying security related to inverse floater entered into by the Fund (See Note 1I). | |
(c) | Capital appreciation bond. | |
(d) | Security is a “step-up” bond where the coupon increases on a predetermined future date. | |
(e) | Advance refunded; secured by an escrow fund of U.S. Government obligations or other highly rated collateral. | |
(f) | Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on August 31, 2010. | |
(g) | Security is considered a cash equivalent. | |
(h) | Current coupon rate for an inverse floating rate municipal obligation. This rate resets periodically as the auction rate on the related security changes. Position in an inverse floating rate municipal obligation has a total value of $7,952,280 which represents 2.4% of net assets. | |
(i) | Security is subject to a shortfall agreement which may require the Fund to pay amounts to a counterparty in the event of a significant decline in the market value of the security underlying the inverse floater. In case of a shortfall, the maximum potential amount of payments the Fund could ultimately be required to make under the agreement is $615,000. However, such shortfall payment would be reduced by the proceeds from the sale of the security underlying the inverse floater. | |
(j) | Floating rate note obligations related to securities held. The interest rates shown reflect the rates in effect at August 31, 2010. At August 31, 2010, the Fund’s investments with a value of $22,138,439 are held by the Dealer Trusts and serve as collateral for the $12,930,000 in floating rate note and dealer trust obligations outstanding at that date. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco California Tax-Free Income Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $321,163,631) | $ | 336,396,618 | ||
Receivable for: | ||||
Investments sold | 2,844,827 | |||
Interest | 4,140,348 | |||
Fund shares sold | 53,647 | |||
Fund expenses absorbed | 92,773 | |||
Other Assets | 8,560 | |||
Total assets | 343,536,773 | |||
Liabilities: | ||||
Floating rate note and dealer trusts obligations | 12,930,000 | |||
Payable for: | ||||
Investments purchased | 1,653,945 | |||
Fund shares reacquired | 1,053,689 | |||
Accrued fees to affiliates | 32,239 | |||
Dividends | 37,171 | |||
Accrued other operating expenses | 55,262 | |||
Trustee retirement plan | 65,648 | |||
Amount due to custodian | 2,422,498 | |||
Total liabilities | 18,250,452 | |||
Net assets applicable to shares outstanding | $ | 325,286,321 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 316,976,296 | ||
Undistributed net investment income | 1,183,458 | |||
Undistributed net realized gain (loss) | (8,106,420 | ) | ||
Unrealized appreciation | 15,232,987 | |||
$ | 325,286,321 | |||
Net Assets: | ||||
Class A | $ | 26,015,018 | ||
Class B | $ | 254,906,716 | ||
Class C | $ | 17,527,950 | ||
Class Y | $ | 26,836,637 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 2,214,505 | |||
Class B | 21,556,080 | |||
Class C | 1,483,432 | |||
Class Y | 2,276,865 | |||
Class A: | ||||
Net asset value per share | $ | 11.75 | ||
Maximum offering price per share, | ||||
(net asset value of $11.75 divided by 95.25%) | $ | 12.34 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 11.83 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 11.82 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 11.79 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco California Tax-Free Income Fund
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Statement of Operations
For the eight months ended August 31, 2010 and year ended December 31, 2009
Eight months ended | Year ended | |||||||
August 31, | December 31, | |||||||
2010 | 2009 | |||||||
Investment Income: | ||||||||
Interest | $ | 12,434,284 | $ | 18,710,110 | ||||
Expenses | ||||||||
Advisory fees | 1,019,748 | 1,595,400 | ||||||
Administrative services fees | 134,880 | 271,557 | ||||||
Custodian fees | 5,981 | 11,679 | ||||||
Distribution fees: | ||||||||
Class A | 68,723 | 58,193 | ||||||
Class B | 395,458 | 733,417 | ||||||
Class C | 85,167 | 130,932 | ||||||
Transfer agent fees | 56,004 | 98,000 | ||||||
Trustees’ and officers’ fees and benefits | 17,176 | 15,399 | ||||||
Interest and residual trust expenses | 81,071 | 41,160 | ||||||
Other | 124,309 | 235,036 | ||||||
Total expenses | 1,988,517 | 3,190,773 | ||||||
Less: Fees waived | (68,548 | ) | (275,609 | ) | ||||
Net expenses | 1,919,969 | 2,915,164 | ||||||
Net investment income | 10,514,315 | 15,794,946 | ||||||
Realized and unrealized gain (loss) from: | ||||||||
Net realized gain (loss) from: | ||||||||
Investment securities | (3,095,711 | ) | (3,647,916 | ) | ||||
Futures contracts | 472,396 | 976,900 | ||||||
(2,623,315 | ) | (2,671,016 | ) | |||||
Change in net unrealized appreciation (depreciation) of: | ||||||||
Investment securities | 17,662,114 | 32,722,407 | ||||||
Futures contracts | (432,227 | ) | 842,956 | |||||
17,229,887 | 33,565,363 | |||||||
Net realized and unrealized gain | 14,606,572 | 30,894,347 | ||||||
Net increase in net assets resulting from operations | $ | 25,120,887 | $ | 46,689,293 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco California Tax-Free Income Fund
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Statements of Changes in Net Assets
For the eight months ended August 31, 2010 and the years ended December 31, 2009 and December 31, 2008
Eight months ended | Year ended | Year ended | ||||||||||
August 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Operations: | ||||||||||||
Net investment income | $ | 10,514,315 | $ | 15,794,946 | $ | 17,524,287 | ||||||
Net realized gain (loss) | (2,623,315 | ) | (2,671,016 | ) | (1,951,662 | ) | ||||||
Change in net unrealized appreciation (depreciation) | 17,229,887 | 33,565,363 | (52,662,162 | ) | ||||||||
Net increase (decrease) in net assets resulting from operations | 25,120,887 | 46,689,293 | (37,089,537 | ) | ||||||||
Distributions to shareholders from net investment income: | ||||||||||||
Class A shares | (1,378,626 | ) | (1,074,299 | ) | (1,061,145 | ) | ||||||
Class B shares | (7,178,057 | ) | (12,491,580 | ) | (13,803,126 | ) | ||||||
Class C shares | (463,014 | ) | (718,214 | ) | (803,091 | ) | ||||||
Class Y shares | (851,291 | ) | (1,394,249 | ) | (1,989,266 | ) | ||||||
Total dividends from net investment income | (9,870,988 | ) | (15,678,342 | ) | (17,656,628 | ) | ||||||
Distributions to shareholders from net realized gains: | ||||||||||||
Class A shares | — | — | (93,086 | ) | ||||||||
Class B shares | — | — | (1,104,557 | ) | ||||||||
Class C shares | — | — | (71,031 | ) | ||||||||
Class Y shares | — | — | (127,822 | ) | ||||||||
Total distributions from net realized gains | — | — | (1,396,496 | ) | ||||||||
Net increase (decrease) from in net assets resulting from share transactions | (25,243,879 | ) | (31,392,896 | ) | (49,269,967 | ) | ||||||
Net increase (decrease) in net assets | (9,993,980 | ) | (381,945 | ) | (105,412,628 | ) | ||||||
Net assets: | ||||||||||||
Beginning of period | 335,280,301 | 335,662,246 | 441,074,874 | |||||||||
End of period (Includes undistributed net investment income of $1,183,458, $364,824 and $248,271, respectively) | $ | 325,286,321 | $ | 335,280,301 | $ | 335,662,246 | ||||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco California Tax-Free Income Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from December 31 to August 31.
Prior to June 1, 2010, the Fund operated as Morgan Stanley California Tax-Free Income Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010, (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s – Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is to provide as high a level of current income exempt from federal and California income tax, as is consistent with the preservation of capital.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
15 Invesco California Tax-Free Income Fund
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A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Securities are fair valued using an evaluated quote provided by an independent pricing service approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Securities with a demand feature exercisable within one to seven days are valued at par. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and principal payments. | ||
Securities for which market quotations either are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Some of the factors which may be considered in determining fair value are fundamental analytical data relating to the investment; the nature and duration of any restrictions on transferability or disposition; trading in similar securities by the same issuer or comparable companies; relevant political, economic or issuer specific news; and other relevant factors under the circumstances. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable and tax-exempt earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
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I. | Floating Rate Obligations Related to Securities Held — The Fund enters into transactions in which it transfers to Special Purpose Trusts established by a Broker Dealer (“Dealer Trusts”) fixed rate bonds in exchange for cash and residual interests in the Dealer Trusts’ assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interest in the bonds. The Fund may enter into shortfall agreements with the Dealer Trusts which commit the Fund to pay the Dealer Trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the Dealer Trusts to the Fund, thereby collapsing the Dealer Trusts. The Fund accounts for the transfer of bonds to the Dealer Trusts as secured borrowings, with the securities transferred remaining in the Fund’s investment assets, and the related floating rate notes reflected as Fund liabilities under the caption “Floating rate note and dealer trust obligations” on the Statement of Assets and Liabilities. The Fund records the interest income from the fixed rate bonds under the caption “Interest” and records the expenses related to floating rate obligations and any administrative expenses of the Dealer Trusts under the caption “Interest and residual trust expenses” on the Statement of Operations. The floating rate notes issued by the Dealer Trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the Dealer Trusts for redemption at par at each reset date. The average floating rate notes outstanding and average annual interest and fee rate related to residual interests during the period ended August 31, 2010 were $12,930,000 and 0.63%, respectively. | |
J. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
K. | Other Risks — The value of, payment of interest on, repayment of principal for and the ability to sell a municipal security may be affected by constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives and the economics of the regions in which the issuers are located. | |
Since, many municipal securities are issued to finance similar projects, especially those relating to education, health care, transportation and utilities, conditions in those sectors can affect the overall municipal securities market and a Fund’s investments in municipal securities. | ||
There is some risk that a portion or all of the interest received from certain tax-free municipal securities could become taxable as a result of determinations by the Internal Revenue Service. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets.
Average Net Assets | Rate | |||
First $500 million | 0 | .47% | ||
Next $250 million | 0 | .445% | ||
Next $250 million | 0 | .42% | ||
Next $250 million | 0 | .395% | ||
Over $1.25 billion | 0 | .37% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $638,425 to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of the Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through June 30, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding certain items discussed below) of Class A, Class B, Class C and Class Y shares to 0.85%, 1.35%, 1.35% and 0.60% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the
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following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and the Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Prior to the Reorganization, MSIA and Morgan Stanley Services Company Inc. (“MSSC”) had voluntarily agreed to cap the Acquired Fund’s operating expenses at 0.60% of the average daily net assets of the Acquired Fund.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For period January 1, 2010 to August 31, 2010, the Adviser and MSIA waived advisory fees of $0 and $68,548, respectively. For the year ended December 31, 2009, MSIA waived advisory fees of $190,391.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, the Acquired Fund paid an administration fee of $108,668 to MSSC. For the period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees.
Also, the Trust has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $36,671 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”), an affiliate of the Adviser. The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will reimburse IDI for distribution related expenses that IDI incurs up to a maximum of the following annual rates; (1) Class A — up to 0.25% of the average daily net assets of Class A shares; (2) Class B — up to 1.00% of the average daily net assets of Class B shares and (3) Class C — up to 1.00% of the average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by IDI, but not yet reimbursed to IDI may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Morgan Stanley Distributors Inc. (“MSDI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $347,092 to MSDI.
For the period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $481 in front-end sales commissions from the sale of Class A shares and $0, $8,094 and $0 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period January 1 to May 31, 2010, MSDI retained $275 in front-end sales commissions from the sale of Class A shares and $1,137, $13,546 and $0 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the year ended December 31, 2009, MSDI retained $16,072 in front-end sales commissions from the sale of Class A shares and $137, $30,684 and $77 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs |
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reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Municipal Obligations | $ | — | $ | 336,396,618 | $ | — | $ | 336,396,618 | ||||||||
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Effect of Derivative Instruments for the eight months ended August 31, 2010 and the year ended December 31, 2009, respectively.
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Eight months ended | Year ended | |||||||
August 31, 2010 | December 31, 2009 | |||||||
Futures | Futures | |||||||
Realized Gain | ||||||||
Interest rate risk | $ | 472,396 | $ | 976,900 | ||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Interest rate risk | (432,227 | ) | 842,956 | |||||
Total | $ | 40,169 | $ | 1,819,856 | ||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the eight months Ended August 31, 2010 and Years Ended December 31, 2009 and 2008:
August 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Tax-exempt income | $ | 9,724,416 | $ | 15,678,323 | $ | 17,608,980 | ||||||
Ordinary income | 146,572 | 19 | 47,648 | |||||||||
Long-term capital gain | — | — | 1,396,496 | |||||||||
Total distributions | $ | 9,870,988 | $ | 15,678,342 | $ | 19,053,124 | ||||||
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Tax Components of Net Assets at Period-End:
August 31, | ||||
2010 | ||||
Undistributed income | $ | 31,127 | ||
Net unrealized appreciation — investments | 16,487,960 | |||
Temporary book/tax differences | (102,818 | ) | ||
Capital loss carryforward | (8,106,244 | ) | ||
Shares of beneficial interest | 316,976,296 | |||
Total net assets | $ | 325,286,321 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to market discount amortization.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2016 | 2,435,320 | |||
August 31, 2018 | 5,670,924 | |||
Total Capital Loss Carryforward | $ | 8,106,244 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the eight months ended August 31, 2010 was $49,674,849 and $78,292,155, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 20,907,988 | ||
Aggregate unrealized (depreciation) of investment securities | (4,420,028 | ) | ||
Net unrealized appreciation of investment securities | $ | 16,487,960 | ||
Cost of investments for tax purposes is $319,908,658. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of bond premium amortizations on August 31, 2010, undistributed net investment income was increased by $175,307 and undistributed net realized gain (loss) was decreased by $175,307. This reclassification had no effect on the net assets of the Fund.
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NOTE 10—Share Information
Eight months ended August 31, 2010(a) | Year ended December 31, 2009 | Year ended December 31, 2008 | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Sold | 16,592,673 | $ | 188,126,111 | 240,802 | $ | 2,646,138 | 447,693 | $ | 5,000,255 | |||||||||||||||
Reinvestment of dividends and distributions | 107,362 | 1,226,512 | 94,573 | 1,032,819 | 98,336 | 1,090,089 | ||||||||||||||||||
Redeemed | (16,660,323 | ) | (190,732,160 | ) | (389,291 | ) | (4,208,218 | ) | (400,956 | ) | (4,492,926 | ) | ||||||||||||
Net increase (decrease) | 39,712 | (1,379,537 | ) | (53,916 | ) | (529,261 | ) | 145,073 | 1,597,418 | |||||||||||||||
Class B | ||||||||||||||||||||||||
Sold | 16,273,049 | 187,452,860 | 476,617 | 5,223,297 | 369,153 | 4,193,781 | ||||||||||||||||||
Reinvestment of dividends and distributions | 502,966 | 5,768,076 | 1,066,514 | 11,724,571 | 1,234,380 | 13,801,430 | ||||||||||||||||||
Redeemed | (18,818,269 | ) | (214,764,082 | ) | (3,903,492 | ) | (42,665,852 | ) | (4,579,774 | ) | (51,381,817 | ) | ||||||||||||
Net increase (decrease) | (2,042,254 | ) | (21,543,146 | ) | (2,360,361 | ) | (25,717,984 | ) | (2,976,241 | ) | (33,386,606 | ) | ||||||||||||
Class C | ||||||||||||||||||||||||
Sold | 90,112 | 1,035,827 | 78,373 | 864,886 | 136,300 | 1,594,645 | ||||||||||||||||||
Reinvestment of dividends and distributions | 34,647 | 397,150 | 63,528 | 697,878 | 73,788 | 824,051 | ||||||||||||||||||
Redeemed | (171,039 | ) | (1,953,476 | ) | (274,857 | ) | (3,014,877 | ) | (463,698 | ) | (5,211,440 | ) | ||||||||||||
Net increase (decrease) | (46,280 | ) | (520,499 | ) | (132,956 | ) | (1,452,113 | ) | (253,610 | ) | (2,792,744 | ) | ||||||||||||
Class Y | ||||||||||||||||||||||||
Sold | 9,681 | 114,432 | 6,220 | 70,350 | 137,098 | 1,599,917 | ||||||||||||||||||
Reinvestment of dividends and distributions | 61,690 | 705,418 | 120,543 | 1,320,593 | 177,369 | 1,984,420 | ||||||||||||||||||
Redeemed | (229,966 | ) | (2,620,547 | ) | (463,743 | ) | (5,084,481 | ) | (1,674,119 | ) | (18,272,372 | ) | ||||||||||||
Net increase (decrease) | (158,595 | ) | (1,800,697 | ) | (336,980 | ) | (3,693,538 | ) | (1,359,652 | ) | (14,688,035 | ) | ||||||||||||
Net increase in (decrease) in share activity | (2,207,417 | ) | $ | (25,243,879 | ) | (2,884,213 | ) | $ | (31,392,896 | ) | (4,444,430 | ) | $ | (49,269,967 | ) | |||||||||
(a) | There is an entity that is a record owners of more than 5% of the outstanding shares of the Fund and owns 84% of the outstanding shares of the Fund. IDI has an agreement with this entity to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to this entity, which is considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity are also owned beneficially. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
NOTE 11—Purposes and Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in inverse floating rate municipal securities, which are variable debt instruments that pay interest at rates that move in the opposite direction of prevailing interest rates. These investments are typically used by the Fund in seeking to enhance the yield of the portfolio. Inverse floating rate investments tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline or remain relatively stable. Inverse floating rate investments have varying degrees of liquidity. Inverse floating rate securities in which the Fund may invest include derivative instruments such as residual interest bonds (“RIBs”) or tender option bonds (“TOBs”). Such instruments are typically created by a special purpose trust that holds long-term fixed rate bonds (which may be tendered by the Fund in certain instances) and sells two classes of beneficial interests: short-term floating rate interests, which are sold to third party investors, and inverse floating residual interests, which are purchased by the Fund. The short-term floating rate interests have first priority on the cash flow from the bonds held by the special purpose trust and the Fund is paid the residual cash flow from the bonds held by the special purpose trust.
The Fund generally invests in inverse floating rate investments that include embedded leverage, thus exposing the Fund to greater risks and increased costs. The market value of a “leveraged” inverse floating rate investment generally will fluctuate in response to changes in market rates of interest to a greater extent than the value of an unleveraged investment. The extent of increases and decreases in the value of inverse floating rate investments generally will be larger than changes in an equal principal amount of a fixed rate security having similar credit quality, redemption provisions and maturity, which may cause the Fund’s net asset value to be more volatile than if it had not invested in inverse floating rate investments.
In certain instances, the short-term floating rate interests created by the special purpose trust may not be able to be sold to third parties or, in the case of holders tendering (or putting) such interests for repayment of principal, may not be able to be remarketed to third parties. In such cases, the special purpose trust holding the long-term fixed rate bonds may be collapsed. In the case of RIBs or TOBs created by the contribution of long-term fixed income bonds by the Fund, the Fund will then be required to repay the principal amount of the tendered securities. During times of market volatility, illiquidity or uncertainty, the Fund could be required to sell other portfolio holdings at a disadvantageous time to raise cash to meet that obligation.
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The Fund may also invest in private placement securities. TOBs are presently classified as private placement securities. Private placement securities are subject to restrictions on resale because they have not been registered under the Securities Act of 1933, as amended or are otherwise not readily marketable. As a result of the absence of a public trading market for these securities, they may be less liquid than publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those originally paid by the Fund or less than what may be considered the fair value of such securities.
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Class A | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.21 | $ | 10.23 | $ | 11.83 | $ | 12.16 | $ | 12.16 | $ | 12.46 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.37 | 0.51 | 0.49 | 0.50 | 0.49 | 0.52 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.52 | 0.97 | (1.56 | ) | (0.31 | ) | 0.06 | (0.10 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.89 | 1.48 | (1.07 | ) | 0.19 | 0.55 | 0.42 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.35 | ) | (0.50 | ) | (0.49 | ) | (0.49 | ) | (0.49 | ) | (0.51 | ) | ||||||||||||
Net realized gain | — | — | (0.04 | ) | (0.03 | ) | (0.06 | ) | (0.21 | ) | ||||||||||||||
Total dividends and distributions | (0.35 | ) | (0.50 | ) | (0.53 | ) | (0.52 | ) | (0.55 | ) | (0.72 | ) | ||||||||||||
Net asset value, end of period | $ | 11.75 | $ | 11.21 | $ | 10.23 | $ | 11.83 | $ | 12.16 | $ | 12.16 | ||||||||||||
Total Return(a) | 8.05 | % | 14.74 | % | (9.28 | )% | 1.62 | % | 4.64 | % | 3.44 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 26,015 | $ | 24,377 | $ | 22,799 | $ | 24,645 | $ | 299,414 | $ | 329,938 | ||||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.88 | %(b) | 0.86 | % | 0.86 | % | 1.00 | % | 0.86 | % | 0.86 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.91 | %(b) | 0.92 | % | 0.90 | % | 1.04 | % | 0.89 | % | 0.87 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 0.84 | %(b) | 0.85 | % | 0.86 | % | 0.84 | % | 0.85 | % | 0.86 | % | ||||||||||||
Net investment income | 4.88 | %(b) | 4.65 | % | 4.33 | % | 4.12 | % | 4.06 | % | 4.11 | % | ||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 15 | % | 19 | % | 10 | % | 5 | % | 5 | % | 23 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $41,293. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
22 Invesco California Tax-Free Income Fund
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NOTE 12—Financial Highlights—(continued)
Class B | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31 | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.28 | $ | 10.30 | $ | 11.91 | $ | 12.24 | $ | 12.24 | $ | 12.52 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.37 | 0.51 | 0.50 | 0.50 | 0.52 | 0.54 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.53 | 0.98 | (1.57 | ) | (0.30 | ) | 0.05 | (0.08 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.90 | 1.49 | (1.07 | ) | 0.20 | 0.57 | 0.46 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.35 | ) | (0.51 | ) | (0.50 | ) | (0.50 | ) | (0.51 | ) | (0.53 | ) | ||||||||||||
Net realized gain | — | — | (0.04 | ) | (0.03 | ) | (0.06 | ) | (0.21 | ) | ||||||||||||||
Total dividends and distributions | (0.35 | ) | (0.51 | ) | (0.54 | ) | (0.53 | ) | (0.57 | ) | (0.74 | ) | ||||||||||||
Net asset value, end of period | $ | 11.83 | $ | 11.28 | $ | 10.30 | $ | 11.91 | $ | 12.24 | $ | 12.24 | ||||||||||||
Total return(a) | 8.10 | % | 14.68 | % | (9.23 | )% | 1.65 | % | 4.81 | % | 3.74 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 254,907 | $ | 266,270 | $ | 267,308 | $ | 344,606 | $ | 132,162 | $ | 159,221 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.88 | %(b) | 0.85 | % | 0.85 | % | 0.97 | % | 0.69 | % | 0.68 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.91 | %(b) | 0.94 | % | 0.89 | % | 1.01 | % | 0.72 | % | 0.69 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 0.84 | %(b) | 0.84 | % | 0.85 | % | 0.81 | % | 0.68 | % | 0.68 | % | ||||||||||||
Net investment income | 4.88 | %(b) | 4.66 | % | 4.34 | % | 4.15 | % | 4.23 | % | 4.29 | % | ||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 15 | % | 19 | % | 10 | % | 5 | % | 5 | % | 23 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $241,064. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 12—Financial Highlights—(continued)
Class C | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.27 | $ | 10.29 | $ | 11.90 | $ | 12.23 | $ | 12.23 | $ | 12.52 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.34 | 0.46 | 0.44 | 0.44 | 0.43 | 0.45 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.52 | 0.97 | (1.57 | ) | (0.30 | ) | 0.06 | (0.08 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.86 | 1.43 | (1.13 | ) | 0.14 | 0.49 | 0.37 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.31 | ) | (0.45 | ) | (0.44 | ) | (0.44 | ) | (0.43 | ) | (0.45 | ) | ||||||||||||
Net realized gain | — | — | (0.04 | ) | (0.03 | ) | (0.06 | ) | (0.21 | ) | ||||||||||||||
Total dividends and distributions | (0.31 | ) | (0.45 | ) | (0.48 | ) | (0.47 | ) | (0.49 | ) | (0.66 | ) | ||||||||||||
Net asset value, end of period | $ | 11.82 | $ | 11.27 | $ | 10.29 | $ | 11.90 | $ | 12.23 | $ | 12.23 | ||||||||||||
Total return(a) | 7.76 | % | 14.11 | % | (9.74 | )% | 1.14 | % | 4.12 | % | 2.97 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 17,528 | $ | 17,245 | $ | 17,105 | $ | 22,800 | $ | 23,320 | $ | 26,385 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.38 | %(b) | 1.36 | % | 1.36 | % | 1.50 | % | 1.36 | % | 1.36 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.41 | %(b) | 1.42 | % | 1.40 | % | 1.54 | % | 1.39 | % | 1.37 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 1.34 | %(b) | 1.35 | % | 1.36 | % | 1.34 | % | 1.35 | % | 1.36 | % | ||||||||||||
Net investment income | 4.38 | %(b) | 4.15 | % | 3.83 | % | 3.62 | % | 3.56 | % | 3.61 | % | ||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 15 | % | 19 | % | 10 | % | 5 | % | 5 | % | 23 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $17,059. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 12—Financial Highlights—(continued)
Class Y | ||||||||||||||||||||||||
Eight months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.25 | $ | 10.26 | $ | 11.86 | $ | 12.20 | $ | 12.20 | $ | 12.49 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.39 | 0.54 | 0.52 | 0.53 | 0.53 | 0.54 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.52 | 0.98 | (1.56 | ) | (0.32 | ) | 0.05 | (0.08 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.91 | 1.52 | (1.04 | ) | 0.21 | 0.58 | 0.46 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.37 | ) | (0.53 | ) | (0.52 | ) | (0.52 | ) | (0.52 | ) | (0.54 | ) | ||||||||||||
Net realized gain | — | — | (0.04 | ) | (0.03 | ) | (0.06 | ) | (0.21 | ) | ||||||||||||||
Total dividends and distributions | (0.37 | ) | (0.53 | ) | (0.56 | ) | (0.55 | ) | (0.58 | ) | (0.75 | ) | ||||||||||||
Net asset value, end of period | $ | 11.79 | $ | 11.25 | $ | 10.26 | $ | 11.86 | $ | 12.20 | $ | 12.20 | ||||||||||||
Total return(a) | 8.21 | % | 15.10 | % | (9.02 | )% | 1.80 | % | 4.90 | % | 3.74 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 26,837 | $ | 27,388 | $ | 28,450 | $ | 49,024 | $ | 53,954 | $ | 53,857 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.63 | %(b) | 0.61 | % | 0.61 | % | 0.76 | % | 0.61 | % | 0.61 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.66 | %(b) | 0.67 | % | 0.65 | % | 0.80 | % | 0.64 | % | 0.62 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 0.59 | %(b) | 0.60 | % | 0.61 | % | 0.60 | % | 0.60 | % | 0.61 | % | ||||||||||||
Net investment income | 5.13 | %(b) | 4.90 | % | 4.58 | % | 4.36 | % | 4.31 | % | 4.36 | % | ||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 15 | % | 19 | % | 10 | % | 5 | % | 5 | % | 23 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $26,482. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 13—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
25 Invesco California Tax-Free Income Fund
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco California Tax-Free Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco California Tax-Free Income Fund (formerly known as Morgan Stanley California Tax-Free Income Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by other independent auditors whose report dated February 25, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
26 Invesco California Tax-Free Income Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 1,063.00 | $ | 4.37 | $ | 1,020.97 | $ | 4.28 | 0.84 | % | ||||||||||||||||||
B | 1,000.00 | 1,062.60 | 4.37 | 1,020.97 | 4.28 | 0.84 | ||||||||||||||||||||||||
C | 1,000.00 | 1,060.10 | 6.96 | 1,018.45 | 6.82 | 1.34 | ||||||||||||||||||||||||
Y | 1,000.00 | 1,064.20 | 3.07 | 1,022.23 | 3.01 | 0.59 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
27 Invesco California Tax-Free Income Fund
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Approval of Investment Advisory and Sub-Advisory Agreements
with Invesco Advisers, Inc. and its Affiliates
with Invesco Advisers, Inc. and its Affiliates
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco California Tax-Free Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed the information provided differently than another Trustee.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts
28 Invesco California Tax-Free Income Fund
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that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
29 Invesco California Tax-Free Income Fund
Table of Contents
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 0% | |||
Corporate Dividends Received Deduction* | 0% | |||
U.S. Treasury Obligations* | 0% | |||
Tax-Exempt Interest Dividends* | 98.5% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
30 Invesco California Tax-Free Income Fund
Table of Contents
Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with theFund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
MS-CTFI-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Dividend Growth Securities Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
11 | Financial Statements | |
13 | Notes to Financial Statements | |
21 | Financial Highlights | |
25 | Auditor’s Report | |
26 | Fund Expenses | |
27 | Approval of Investment Advisory and Sub-Advisory Agreements | |
29 | Tax Information | |
30 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our Intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Dividend Growth Securities Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Dividend Growth Securities Fund |
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Management’s Discussion of Fund Performance
Performance summary
Effective June 25, 2010, Meggan Walsh assumed management of Invesco Dividend Growth Securities Fund as lead portfolio manager along with Jonathan Harrington as portfolio manager and a team of equity analysts. Our team has extensive industry experience specifically with strategies that focus on dividend-paying stocks. We appreciate the opportunity to manage your Fund and look forward to a long-term partnership.
For the six months ended August 31, 2010, Invesco Dividend Growth Securities Fund underperformed its benchmark, the S&P 500 Index. While we were managing the Fund for only part of this time, our comments will encompass the entire reporting period. The Fund’s underperformance for the period was largely due to an overweight in the consumer discretionary sector relative to the index. The Fund’s holdings in the industrials and telecommunication services sectors also detracted from relative results. Holdings in the consumer staples and utilities sectors had a positive effect on the Fund.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 2/28/10 to 8/31/10, at net asset value (NAV). Performance shown does not Include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -5.57 | % | ||
Class B Shares | -5.66 | |||
Class C Shares | -5.93 | |||
Class Y Shares | -5.44 | |||
S&P 500 Index▼ (Broad Market Index/Style-Specific Index) | -4.02 | |||
Lipper Large-Cap Core Funds index▼ (Peer Group Index) | -5.26 | |||
▼ | Lipper Inc. |
How we invest
Our total return approach focuses on balancing long-term capital appreciation, current income and capital preservation. The Fund can serve as a conservative cornerstone within a well-diversified asset allocation strategy, complementing more aggressive and cyclical investments.
We seek companies that we believe have normalized earnings power greater than that implied by their current market valuation and that also return capital to shareholders through dividends and share repurchases. All stocks in the portfolio pay a dividend, and the Fund pays a quarterly dividend to shareholders. We strive to manage risk utilizing a valuation
framework, careful stock selection and a rigorous buy-and-sell discipline.
We look for dividend-paying companies with strong profitability, solid balance sheets and capital allocation policies that may support sustained or increasing dividends and share repurchases.
We perform extensive fundamental research, incorporating both financial statement analysis and an assessment of the potential reward relative to the downside risk to determine a fair valuation over our two-year investment horizon for each stock. We believe our process can provide the best combination of dividend income, price appreciation and capital preservation.
We maintain a rigorous sell discipline and consider selling or trimming a stock when it no longer meets our investment criteria, including when:
n | A stock reaches its fair valuation (target price). | |
n | The company’s fundamental business prospects deteriorate. | |
n | A more attractive investment opportunity presents itself. |
Market conditions and your Fund
During the reporting period, equity markets were volatile as the market began to question the sustainability of the recovery. Fears of a double-dip recession arose as the sovereign debt crisis unfolded in the eurozone and economic Indicators remained weak domestically. In the U.S., unemployment, consumer spending and the housing market all remained subdued, adding to fears that the recovery was slowing to a sub-normal growth rate.
In this environment, eight out of 10 sectors of the S&P 500 Index declined during the period.1 The more economically sensitive sectors such as financials, health care and energy had the lowest returns, while the traditionally defensive telecommunication services and utilities sectors had the highest returns.1 The health care sector, which historically has been more defensive, was interestingly the worst performer during this reporting period mostly due to U.S. health care reform.1
The largest detractor from the Fund’s absolute performance was Microsoft in the information technology (IT) sector, due to uncertain consumer and enterprise PC demand and the success of Apple’s iPad tablet computer, which is a potential threat to Microsoft’s franchise. The Fund’s exposure to the consumer discretionary sector also detracted from Fund performance, with Royal Caribbean and Best Buy among the top detractors.
Portfolio Composition
By sector
Consumer Staples | 18.7 | % | ||
Financials | 18.6 | |||
Consumer Discretionary | 15.8 | |||
Industrials | 11.6 | |||
Information Technology | 7.4 | |||
Energy | 6.0 | |||
Health Care | 5.4 | |||
Utilities | 5.3 | |||
Materials | 4.8 | |||
Telecommunication Services | 1.4 | |||
Money Market Funds Plus Other Assets | ||||
Less Liabilities | 5.0 |
Top 10 Holdings*
1. | Philip Morris International, Inc. | 3.2 | % | |||||
2. | Kimberly-Clark Corp. | 2.9 | ||||||
3. | American Electric Power Co., Inc. | 2.1 | ||||||
4. | SunTrust Banks, Inc. | 2.1 | ||||||
5. | Automatic Data Processing, Inc. | 2.0 | ||||||
6. | United Technologies Corp. | 1.9 | ||||||
7. | Johnson & Johnson | 1.9 | ||||||
8. | Altria Group, Inc. | 1.8 | ||||||
9. | Capital One Financial Corp. | 1.7 | ||||||
10. | General Dynamics Corp. | 1.7 |
Total Net Assets | $1.2 billion | |||
Total Number of Holdings* | 71 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Dividend Growth Securities Fund |
Table of Contents
We eliminated our position in Royal Caribbean, but continued to hold Best Buy at the end of the period.
The Fund engaged in derivatives transactions during the reporting period. Portfolio managers wrote call options in order to generate income from the option premiums. The options generated a positive return, but they were not a significant contributor to Fund performance.
Since taking over the Fund, we added new holdings, such as General Mills and Coca-Cola, increasing our overweight exposure to the consumer staples sector. The Fund benefited from these moves as these companies delivered positive returns. Other strong contributors during the reporting period included holdings such as Lubrizol and Philip Morris. We continued to hold our Lubrizol and Philip Morris positions at the end of the period.
We also increased our exposure to the financials and industrials sectors during the reporting period, while trimming exposure to the energy, health care and IT sectors. At the end of the period, our largest sector overweights relative to the S&P 500 index were in consumer staples, consumer discretionary and financials. Our largest underweights were in IT, health care, and energy.
The past several months have indeed been challenging for the markets. Although there have been signs of a slowdown in growth, we believe this is a normal part of the economic cycle as we transition out of the recovery phase. There are a number of positives which make us more optimistic about the markets. Corporate operating leverage is strong and profitability remained high given the dramatic cost reductions taken during the market downturn. Balance sheets are flush with cash, which can be used to benefit shareholders through dividends and/or share repurchases. Dividend-paying stocks are also attractive relative to bonds as equity yields remained higher. The removal of many regulatory-related uncertainties also bodes well for equity valuations.
We believe one of our competitive advantages is a disciplined approach to evaluating stocks from a total return perspective; focusing not only on their capital appreciation potential, but also on their current dividend income and capital preservation. This approach helps create a well-diversified Fund that can serve as a cornerstone allocation within an overall portfolio.
As always, we thank you for your continued investment in Invesco Dividend Growth Securities Fund.
1 Lipper Inc.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Meggan Walsh
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Dividend Growth Securities Fund. Ms. Walsh began her investment career in 1987 and joined Invesco in 1991. She earned a B.S. in finance from the University of Maryland and an M.B.A. from Loyola University Maryland.
Jonathan Harrington
Chartered Financial Analyst, portfolio manager, is manager of Invesco Dividend Growth Securities Fund. Mr. Harrington joined Invesco in 2001 in its corporate associate rotation program. He earned a B.A. in history and philosophy from Dartmouth College and an M.B.A. from the Kellogg Graduate School of Management at Northwestern University.
5 | Invesco Dividend Growth Securities Fund |
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Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Fund data from 3/30/81, Index data from 3/31/81
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges.
Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 | Invesco Dividend Growth Securities Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||||||
Inception (7/28/97) | 0.76 | % | ||||||
10 | Years | -0.70 | ||||||
5 | Years | -3.82 | ||||||
1 | Year | -4.76 | ||||||
Class B Shares | ||||||||
Inception (3/30/81) | 9.14 | % | ||||||
10 | Years | -0.34 | ||||||
5 | Years | -2.85 | ||||||
1 | Year | -4.13 | ||||||
Class C Shares | ||||||||
Inception (7/28/97) | 0.45 | % | ||||||
10 | Years | -0.87 | ||||||
5 | Years | -3.44 | ||||||
1 | Year | -0.93 | ||||||
Class Y Shares | ||||||||
Inception (7/28/97) | 1.44 | % | ||||||
10 | Years | 0.11 | ||||||
5 | Years | -2.47 | ||||||
1 | Year | 1.03 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco Dividend Growth Securities Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco Dividend Growth Securities Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, and Class Y shares was 0.95%, 0.94%, 1.70% and 0.70%, respectively.1 The
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||||
Inception (7/28/97) | 0.72 | % | ||||||
10 | Years | -0.26 | ||||||
5 | Years | -3.51 | ||||||
1 | Year | 5.74 | ||||||
Class B Shares | ||||||||
Inception (3/30/81) | 9.18 | % | ||||||
10 | Years | 0.08 | ||||||
5 | Years | -2.53 | ||||||
1 | Year | 6.89 | ||||||
Class C Shares | ||||||||
Inception (7/28/97) | 0.41 | % | ||||||
10 | Years | -0.44 | ||||||
5 | Years | -3.14 | ||||||
1 | Year | 10.10 | ||||||
Class Y Shares | ||||||||
Inception (7/28/97) | 1.41 | % | ||||||
10 | Years | 0.56 | ||||||
5 | Years | -2.15 | ||||||
1 | Year | 12.24 |
total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, and Class Y shares was 0.98%, 0.97%, 1.73% and 0.73%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Dividend Growth Securities Fund |
Table of Contents
Invesco Dividend Growth Securities Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | In general, stock and other equity security values fluctuate, and sometimes widely fluctuate, in response to activities specific to the company as well as general market, economic and political conditions. Investments in convertible securities subject the Fund to the risks associated with both fixed income securities, including credit risk and interest rate risk, and common stocks. | |
n | The values of convertible securities in which the Fund invests may be affected by market interest rates, the risk that the issuer may default on interest or principal payments, and the value of the underlying common stock into which these securities may be converted. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in |
losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. | ||
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
n | The Lipper Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core funds tracked by Lipper. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | DIVAX | |||
Class B Shares | DIVBX | |||
Class C Shares | DIVCX | |||
Class Y Shares | DIVDX |
8 | Invesco Dividend Growth Securities Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks–95.0% | ||||||||
Aerospace & Defense–4.8% | ||||||||
General Dynamics Corp. | 359,482 | $ | 20,084,259 | |||||
Raytheon Co. | 294,456 | 12,932,508 | ||||||
United Technologies Corp. | 343,404 | 22,393,375 | ||||||
55,410,142 | ||||||||
Apparel Retail–1.2% | ||||||||
Ross Stores, Inc. | 273,906 | 13,593,955 | ||||||
Apparel, Accessories & Luxury Goods–1.2% | ||||||||
VF Corp. | 193,116 | 13,637,852 | ||||||
Asset Management & Custody Banks–2.5% | ||||||||
Federated Investors, Inc.–Class B(b) | 747,771 | 15,591,025 | ||||||
State Street Corp. | 395,506 | 13,874,351 | ||||||
29,465,376 | ||||||||
Auto Parts & Equipment–1.4% | ||||||||
Johnson Controls, Inc. | 598,120 | 15,868,124 | ||||||
Brewers–1.7% | ||||||||
Heineken N.V. (Netherlands)(b) | 438,016 | 19,565,480 | ||||||
Building Products–1.5% | ||||||||
Masco Corp. | 1,659,516 | 17,408,323 | ||||||
Casinos & Gaming–1.3% | ||||||||
International Game Technology | 1,065,020 | 15,549,292 | ||||||
Communications Equipment–1.4% | ||||||||
Corning, Inc. | 1,039,790 | 16,303,907 | ||||||
Computer & Electronics Retail–1.3% | ||||||||
Best Buy Co., Inc. | 494,961 | 15,536,826 | ||||||
Computer Hardware–1.3% | ||||||||
International Business Machines Corp. | 120,406 | 14,837,631 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.3% | ||||||||
Caterpillar, Inc. | 225,173 | 14,672,273 | ||||||
Consumer Finance–3.3% | ||||||||
American Express Co. | 446,294 | 17,793,742 | ||||||
Capital One Financial Corp. | 531,011 | 20,104,076 | ||||||
37,897,818 | ||||||||
Data Processing & Outsourced Services–2.0% | ||||||||
Automatic Data Processing, Inc. | 607,510 | 23,455,961 | ||||||
Distributors–0.7% | ||||||||
Genuine Parts Co. | 194,098 | 8,138,529 | ||||||
Diversified Banks–1.0% | ||||||||
Societe Generale (France) | 240,258 | 12,149,993 | ||||||
Diversified Chemicals–1.5% | ||||||||
EI Du Pont de Nemours & Co. | 440,770 | 17,970,193 | ||||||
Drug Retail–0.7% | ||||||||
Walgreen Co. | 318,827 | 8,570,070 | ||||||
Electric Utilities–3.3% | ||||||||
American Electric Power Co., Inc. | 693,860 | 24,569,583 | ||||||
Entergy Corp. | 176,767 | 13,936,310 | ||||||
38,505,893 | ||||||||
Electrical Components & Equipment–1.5% | ||||||||
Emerson Electric Co. | 381,859 | 17,813,722 | ||||||
Food Distributors–1.7% | ||||||||
Sysco Corp. | 723,886 | 19,899,626 | ||||||
Gas Utilities–0.5% | ||||||||
Southern Union Co. | 263,143 | 5,920,718 | ||||||
General Merchandise Stores–1.7% | ||||||||
Target Corp. | 389,416 | 19,922,523 | ||||||
Health Care Equipment–1.4% | ||||||||
Stryker Corp. | 370,610 | 16,006,646 | ||||||
Hotels, Resorts & Cruise Lines–0.7% | ||||||||
Marriott International, Inc.–Class A | 256,928 | 8,224,265 | ||||||
Household Appliances–2.3% | ||||||||
Snap-On, Inc. | 365,515 | 15,070,184 | ||||||
Whirlpool Corp. | 151,796 | 11,257,191 | ||||||
26,327,375 | ||||||||
Household Products–3.9% | ||||||||
Kimberly-Clark Corp. | 520,122 | 33,495,857 | ||||||
Procter & Gamble Co. (The) | 198,042 | 11,817,166 | ||||||
45,313,023 | ||||||||
Industrial Machinery–1.4% | ||||||||
Pentair, Inc. | 552,444 | 16,628,564 | ||||||
Insurance Brokers–1.4% | ||||||||
Marsh & McLennan Cos., Inc. | 706,582 | 16,760,125 | ||||||
Integrated Oil & Gas–4.8% | ||||||||
Chevron Corp. | 195,559 | 14,502,655 | ||||||
Eni SpA (Italy) | 697,579 | 13,786,651 | ||||||
Exxon Mobil Corp. | 311,043 | 18,401,304 | ||||||
Total SA (France) | 196,691 | 9,158,841 | ||||||
55,849,451 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Dividend Growth Securities Fund
Table of Contents
Shares | Value | |||||||
Integrated Telecommunication Services–1.4% | ||||||||
AT&T, Inc. | 610,916 | $ | 16,513,059 | |||||
Investment Banking & Brokerage–0.7% | ||||||||
Charles Schwab Corp. (The) | 679,826 | 8,674,580 | ||||||
Leisure Products–0.8% | ||||||||
Mattel, Inc. | 439,875 | 9,232,976 | ||||||
Life & Health Insurance–2.3% | ||||||||
Lincoln National Corp. | 397,590 | 9,287,702 | ||||||
MetLife, Inc. | 451,403 | 16,972,753 | ||||||
26,260,455 | ||||||||
Motorcycle Manufacturers–0.5% | ||||||||
Harley-Davidson, Inc. | 249,802 | 6,075,185 | ||||||
Movies & Entertainment–1.3% | ||||||||
Time Warner, Inc. | 491,228 | 14,727,015 | ||||||
Multi-Utilities–1.5% | ||||||||
DTE Energy Co. | 383,020 | 17,944,487 | ||||||
Office Services & Supplies–1.1% | ||||||||
Pitney Bowes, Inc. | 634,550 | 12,208,742 | ||||||
Oil & Gas Equipment & Services–1.2% | ||||||||
Baker Hughes, Inc. | 355,542 | 13,361,268 | ||||||
Other Diversified Financial Services–1.0% | ||||||||
JPMorgan Chase & Co. | 304,858 | 11,084,637 | ||||||
Packaged Foods & Meats–4.4% | ||||||||
Campbell Soup Co. | 351,946 | 13,113,508 | ||||||
General Mills, Inc. | 410,595 | 14,847,115 | ||||||
Kraft Foods, Inc.–Class A | 633,845 | 18,983,658 | ||||||
Mead Johnson Nutrition Co. | 89,182 | 4,654,409 | ||||||
51,598,690 | ||||||||
Paper Products–1.6% | ||||||||
International Paper Co. | 891,820 | 18,246,637 | ||||||
Pharmaceuticals–4.0% | ||||||||
Bristol-Myers Squibb Co. | 666,839 | 17,391,161 | ||||||
Johnson & Johnson | 386,694 | 22,049,292 | ||||||
Pfizer, Inc. | 411,297 | 6,551,961 | ||||||
45,992,414 | ||||||||
Property & Casualty Insurance–1.6% | ||||||||
Travelers Cos., Inc. (The) | 380,950 | 18,658,931 | ||||||
Regional Banks–3.4% | ||||||||
Fifth Third Bancorp | 1,408,954 | 15,568,942 | ||||||
SunTrust Banks, Inc. | 1,063,958 | 23,928,415 | ||||||
39,497,357 | ||||||||
Restaurants–1.4% | ||||||||
Brinker International, Inc. | 1,021,344 | 16,086,168 | ||||||
Semiconductors–0.6% | ||||||||
Texas Instruments, Inc. | 294,886 | 6,791,225 | ||||||
Soft Drinks–1.4% | ||||||||
Coca-Cola Co. (The) | 301,218 | 16,844,111 | ||||||
Specialty Chemicals–1.7% | ||||||||
Lubrizol Corp. (The) | 209,888 | 19,584,649 | ||||||
Systems Software–2.1% | ||||||||
Microsoft Corp. | 482,035 | 11,318,182 | ||||||
Oracle Corp. | 582,680 | 12,749,038 | ||||||
24,067,220 | ||||||||
Thrifts & Mortgage Finance–1.4% | ||||||||
Hudson City Bancorp, Inc. | 1,378,605 | 15,888,423 | ||||||
Tobacco–4.9% | ||||||||
Altria Group, Inc. | 913,620 | 20,391,998 | ||||||
Philip Morris International, Inc. | 714,841 | 36,771,421 | ||||||
57,163,419 | ||||||||
Total Common Stocks (Cost $1,037,433,901) | 1,103,705,324 | |||||||
Money Market Funds–4.4% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 25,551,635 | 25,551,635 | ||||||
Premier Portfolio–Institutional Class(c) | 25,551,635 | 25,551,635 | ||||||
Total Money Market Funds (Cost $51,103,270) | 51,103,270 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash from securities on loan–99.4% (Cost $1,088,537,171) | 1,154,808,594 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–2.1% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $25,014,384)(c)(d) | 25,014,384 | 25,014,384 | ||||||
TOTAL INVESTMENTS–101.5% (Cost $1,113,551,555) | 1,179,822,978 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.5)% | (17,975,428 | ) | ||||||
NET ASSETS–100.0% | $ | 1,161,847,550 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | All or a portion of this security was out on loan at August 31, 2010. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(d) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $1,037,433,901)* | $ | 1,103,705,324 | ||
Investments in affiliated money market funds, at value and cost | 76,117,654 | |||
Total investments, at value (Cost $1,113,551,555) | 1,179,822,978 | |||
Receivable for: | ||||
Investments sold | 57,970,618 | |||
Dividends | 3,140,991 | |||
Fund shares sold | 31,844 | |||
Fund expenses absorbed | 573,091 | |||
Other Assets | 50,700 | |||
Total assets | 1,241,590,222 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 51,465,643 | |||
Fund shares reacquired | 2,736,853 | |||
Collateral upon return of securities loaned | 25,014,384 | |||
Accrued fees to affiliates | 333,881 | |||
Accrued other operating expenses | 125,493 | |||
Trustee deferred compensation and retirement plans | 66,418 | |||
Total liabilities | 79,742,672 | |||
Net assets applicable to shares outstanding | $ | 1,161,847,550 | ||
Net assets consist of: | ||||
Capital stock | $ | 968,076,147 | ||
Undistributed net investment income | 4,227,004 | |||
Undistributed net realized gain | 123,273,320 | |||
Unrealized appreciation | 66,271,079 | |||
$ | 1,161,847,550 | |||
Net Assets: | ||||
Class A | $ | 35,314,722 | ||
Class B | $ | 1,091,985,638 | ||
Class C | $ | 19,445,375 | ||
Class Y | $ | 15,101,815 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 2,791,535 | |||
Class B | 85,676,820 | |||
Class C | 1,542,676 | |||
Class Y | 1,191,897 | |||
Class A: | ||||
Net asset value per share | $ | 12.65 | ||
Maximum offering price per share, | ||||
(net asset value of $12.65 divided by 94.50%) | $ | 13.39 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 12.75 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 12.60 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 12.67 | ||
* | At August 31, 2010, securities with an aggregate value of $24,045,635 were on loan to brokers. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the period March 1, 2010 through August 31, 2010 and the year ended February 28, 2010
Six months ended | For the year ended | |||||||
August 31, 2010 | February 28, 2010 | |||||||
Investment Income: | ||||||||
Dividends (net of $21,029 and $32,019 foreign withholding tax, respectively) | $ | 14,518,800 | $ | 30,018,596 | ||||
Dividends from affiliated money market funds (includes securities lending income of $1,385) | 28,369 | 16,012 | ||||||
Total investment income | 14,547,169 | 30,034,608 | ||||||
Expenses | ||||||||
Advisory fees | 2,910,337 | 5,868,611 | ||||||
Administrative services fees | 361,616 | 1,074,656 | ||||||
Custodian fees | 20,861 | 51,131 | ||||||
Distribution fees: | ||||||||
Class A | 180,908 | 102,468 | ||||||
Class B | 1,400,451 | 3,092,921 | ||||||
Class C | 110,885 | 228,265 | ||||||
Transfer agent fees | 911,723 | 2,342,741 | ||||||
Directors’ and officers’ fees and benefits | 15,488 | 50,778 | ||||||
Other | 22,850 | 793,249 | ||||||
Total expenses | 5,935,119 | 13,604,820 | ||||||
Less: Fees waived | (16,227 | ) | (73,197 | ) | ||||
Net expenses | 5,918,892 | 13,531,623 | ||||||
Net investment income | 8,628,277 | 16,502,985 | ||||||
Realized and unrealized gain (loss) from: | ||||||||
Net realized gain (loss) from: | ||||||||
Investment securities* | 131,398,410 | 113,454,956 | ||||||
Options written | 226,425 | 1,377,320 | ||||||
Foreign currencies | (192,805 | ) | — | |||||
131,432,030 | 114,832,276 | |||||||
Change in net unrealized appreciation (depreciation) of: | ||||||||
Investment securities | (205,762,914 | ) | 390,434,231 | |||||
Options written | (95,837 | ) | 95,837 | |||||
Foreign currencies | (344 | ) | — | |||||
(205,859,095 | ) | 390,530,068 | ||||||
Net realized and unrealized gain (loss) | (74,427,065 | ) | 505,362,344 | |||||
Net increase (decrease) in net assets resulting from operations | $ | (65,798,788 | ) | $ | 521,865,329 | |||
* | Includes net gains from securities sold to affiliates of $29,367,310 for the six months ended August 31, 2010. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statements of Changes in Net Assets
For the period March 1, 2010 through August 31, 2010 and the years ended February 28, 2010 and 2009, respectively
Six months ended | For the year ended | For the year ended | ||||||||||
August 31, 2010 | February 28, 2010 | February 28, 2009 | ||||||||||
Operations: | ||||||||||||
Net investment income | $ | 8,628,277 | $ | 16,502,985 | $ | 29,796,769 | ||||||
Net realized gain (loss) | 131,432,030 | 114,832,276 | (65,082,253 | ) | ||||||||
Change in net unrealized appreciation (depreciation) | (205,859,095 | ) | 390,530,068 | (914,678,355 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | (65,798,788 | ) | 521,865,329 | (949,963,839 | ) | |||||||
Distributions to shareholders from net investment income: | ||||||||||||
Class A shares | (240,567 | ) | (652,947 | ) | (762,753 | ) | ||||||
Class B shares | (7,447,974 | ) | (20,107,994 | ) | (28,675,669 | ) | ||||||
Class C shares | (49,742 | ) | (196,960 | ) | (255,760 | ) | ||||||
Class Y shares | (119,698 | ) | (307,798 | ) | (1,228,001 | ) | ||||||
Total distributions to shareholders from net investment income | (7,857,981 | ) | (21,265,699 | ) | (30,922,183 | ) | ||||||
Distributions to shareholders from net realized gains: | ||||||||||||
Class A shares | (502,982 | ) | — | (2,206,572 | ) | |||||||
Class B shares | (15,558,772 | ) | — | (83,432,405 | ) | |||||||
Class C shares | (279,283 | ) | — | (1,566,716 | ) | |||||||
Class Y shares | (208,816 | ) | — | (4,098,059 | ) | |||||||
Total distributions to shareholders from net realized gains | (16,549,853 | ) | — | (91,303,752 | ) | |||||||
Net increase (decrease) from capital stock transactions | (120,853,500 | ) | (221,613,254 | ) | (355,627,490 | ) | ||||||
Net increase (decrease) in net assets | (211,060,122 | ) | 278,986,376 | (1,427,817,264 | ) | |||||||
Net Assets: | ||||||||||||
Beginning of year | 1,372,907,672 | 1,093,921,296 | 2,521,738,560 | |||||||||
End of year (Includes undistributed net investment income of $4,227,004, $3,606,211 and $8,369,449, respectively) | $ | 1,161,847,550 | $ | 1,372,907,672 | $ | 1,093,921,296 | ||||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Dividend Growth Securities Fund (the “Fund”) is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust, formerly AIM Counselor Series Trust) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from February 28 to August 31.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Dividend Growth Securities, Inc. (the “Acquired Fund”), as a diversified, open-end management investment company. The Acquired Fund was reorganized on June 1, 2010, (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
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The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be |
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evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | ||
D. | Distributions — Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Call Options Written — The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A 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. | |
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
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The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .545% | ||
Next $750 million | 0 | .42% | ||
Next $1 billion | 0 | .395% | ||
Next $1 billion | 0 | .37% | ||
Next $1 billion | 0 | .345% | ||
Next $1 billion | 0 | .32% | ||
Next $1 billion | 0 | .295% | ||
Next $2 billion | 0 | .27% | ||
Next $2 billion | 0 | .245% | ||
Next $5 billion | 0 | .22% | ||
Over $15 billion | 0 | .195% | ||
Prior to the Reorganization, the Acquired Fund paid at advisory fee of $1,535,396 to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the date of Reorganization, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C and Class Y shares to 0.95%, 1.70%, 1.70% and 0.70%, respectively, of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period March 1, 2010 to August 31, 2010, the Adviser and MSIA waived advisory fees of $13,767 and $2,338, respectively. For the year ended February 28, 2010, MSIA waived advisory fees of $11,128.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, the Acquired Fund paid an administration fee of $282,251 to Morgan Stanley Services Company, Inc. For the period March 1, 2010 to August 31, 2010 and the year ended February 28, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees.
Also, the Trust has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of
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providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $537,167 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the period March 1, 2010 to August 31, 2010 and the year ended February 28, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”), an affiliate of the Adviser. The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will reimburse IDI for distribution related expenses that IDI incurs up to a maximum of the following annual rates; (1) Class A — up to 0.25% of the average daily net assets of Class A shares; (2) Class B — up to 1.00% of the average daily net assets of Class B shares and (3) Class C — up to 1.00% of the average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by IDI, but not yet reimbursed to IDI may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. For the year ended August 31, 2010, the distribution fee was accrued for Class B shares at an annual rate of 0.24%.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Morgan Stanley Distributors Inc. (“MSDI”) to serve as the distributor for the Class A, Class B and Class C shares. MSDI had agreed to waive the 12b-1 fee on Class B shares to the extent it exceeds 0.24% of the average daily net assets of such shares on an annualized basis. Pursuant to such agreements, for the period March 1, 2010 through May 31, 2010 the Acquired Fund paid $890,959 to MSDI.
For the period March 1, 2010 to August 31, 2010 and the year ended February 28, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees. For the year ended February 28, 2010, MSDI waived Class B distribution fees of $62,069.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $284 in front-end sales commissions from the sale of Class A shares and $32,384, $36,975 and $258 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period March 1 to May 31, 2010, MSDI retained $7,039 in front-end sales commissions from the sale of Class A shares and $4,069, $27,674 and $333 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the year ended February 28, 2010, MSDI retained $7,680 in front-end sales commissions from the sale of Class A shares and $9,169, $140,331 and $1,879 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the period March 1, 2010 to August 31, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,125,162,013 | $ | 54,660,965 | $ | — | $ | 1,179,822,978 | ||||||||
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
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Effect of Derivative Instruments for the six months ended August 31, 2010 and the year ended February 28, 2010, respectively.
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Six months ended | For the year ended | |||||||
August 31, 2010 | February 28, 2010 | |||||||
Options | Options | |||||||
Realized Gain | ||||||||
Equity risk | $ | 226,425 | $ | 1,377,320 | ||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Equity risk | (95,837 | ) | 95,837 | |||||
Total | $ | 130,588 | $ | 1,473,157 | ||||
Transactions in options for the six months ended August 31, 2010, were as follows:
Number of | ||||||||
Contracts | Premium | |||||||
Options written, outstanding at beginning of period | 1,365 | $ | 192,527 | |||||
Options written | 1,160 | 360,157 | ||||||
Options expired | (1,160 | ) | (242,399 | ) | ||||
Options closed | (1,365 | ) | (310,285 | ) | ||||
Options written, outstanding at end of period | — | $ | — | |||||
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the period ended August 31, 2010, the Fund engaged in securities purchases of $12,469,821 and securities sales of $65,167,106, which resulted in net realized gains of $29,367,310.
NOTE 6—Expense Offset Arrangement
The expense offset arrangement is comprised of transfer agency credits which result from balances in Demand Deposit Accounts (DDA) used by the transfer agent for clearing shareholder transactions. For the period ended August 31, 2010, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $122.
NOTE 7—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 8—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
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NOTE 9—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Period Ended August 31, 2010 and years ended February 28, 2010 and 2009:
August 31, 2010 | February 28, 2010 | February 28, 2009 | ||||||||||
Ordinary income | $ | 7,857,981 | $ | 21,265,699 | $ | 30,922,183 | ||||||
Long-term capital gain | 16,549,853 | — | 91,303,752 | |||||||||
Total distributions | $ | 24,407,834 | $ | 21,265,699 | $ | 122,225,935 | ||||||
Tax Components of Net Assets at Period-End:
August 31, 2010 | ||||
Undistributed ordinary income | $ | 8,128,902 | ||
Undistributed long-term gain | 119,452,997 | |||
Net unrealized appreciation — investments | 66,256,266 | |||
Net unrealized appreciation (depreciation) — other investments | (344 | ) | ||
Temporary book/tax differences | (66,418 | ) | ||
Shares of beneficial interest | 968,076,147 | |||
Total net assets | $ | 1,161,847,550 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $4,815,939 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have a capital loss carryforward at period-end.
NOTE 10—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the period ended August 31, 2010 was $749,655,961 and $932,373,152, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 120,627,108 | ||
Aggregate unrealized (depreciation) of investment securities | (54,370,842 | ) | ||
Net unrealized appreciation of investment securities | $ | 66,256,266 | ||
Cost of investments for tax purposes is $1,113,566,712. |
NOTE 11—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on August 31, 2010, undistributed net investment income was decreased by $149,503, undistributed net realized gain was increased by $149,493 and shares of beneficial interest increased by $10. This reclassification had no effect on the net assets of the Fund.
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NOTE 12—Share Information
Summary of Share Activity | ||||||||||||||||||||||||
Six months ended | For the years ended February 28, | |||||||||||||||||||||||
August 31, 2010(a) | 2010 | 2009 | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Class A Shares | ||||||||||||||||||||||||
Sold | 65,780,971 | $ | 859,627,511 | 136,093 | $ | 1,677,854 | 914,162 | $ | 10,782,218 | |||||||||||||||
Reinvestment of dividends and distributions | 52,264 | 709,513 | 55,201 | 636,422 | 180,847 | 2,874,607 | ||||||||||||||||||
Redeemed | (66,093,179 | ) | (856,677,656 | ) | (707,016 | ) | (8,747,373 | ) | (1,036,670 | ) | (14,999,359 | ) | ||||||||||||
Net increase (decrease) — Class A | (259,944 | ) | 3,659,368 | (515,722 | ) | (6,433,097 | ) | 58,339 | (1,342,534 | ) | ||||||||||||||
Class B Shares | ||||||||||||||||||||||||
Sold | 64,207,654 | 837,627,834 | 419,998 | 5,119,934 | 662,272 | 9,264,799 | ||||||||||||||||||
Reinvestment of dividends and distributions | 1,625,653 | 22,245,980 | 1,696,800 | 19,707,658 | 6,881,569 | 110,634,758 | ||||||||||||||||||
Redeemed | (73,989,998 | ) | (981,974,862 | ) | (19,013,548 | ) | (232,509,233 | ) | (27,921,198 | ) | (402,642,135 | ) | ||||||||||||
Net increase (decrease) — Class B | (8,156,691 | ) | (122,101,048 | ) | (16,896,750 | ) | (207,681,641 | ) | (20,377,357 | ) | (282,742,578 | ) | ||||||||||||
Class C Shares | ||||||||||||||||||||||||
Sold | 31,099 | 436,565 | 79,592 | 996,499 | 81,528 | 1,107,333 | ||||||||||||||||||
Reinvestment of dividends and distributions | 23,677 | 318,283 | 17,061 | 190,978 | 112,310 | 1,801,238 | ||||||||||||||||||
Redeemed | (194,501 | ) | (2,666,517 | ) | (467,509 | ) | (5,693,843 | ) | (650,622 | ) | (9,479,034 | ) | ||||||||||||
Net increase (decrease) — Class C | (139,725 | ) | (1,911,669 | ) | (370,856 | ) | (4,506,366 | ) | (456,784 | ) | (6,570,463 | ) | ||||||||||||
Class Y Shares | ||||||||||||||||||||||||
Sold | 14,853 | 200,938 | 35,249 | 414,675 | 189,525 | 3,093,230 | ||||||||||||||||||
Reinvestment of dividends and distributions | 23,449 | 319,096 | 26,153 | 303,025 | 323,910 | 5,310,205 | ||||||||||||||||||
Redeemed | (73,311 | ) | (1,020,185 | ) | (301,983 | ) | (3,709,850 | ) | (5,462,806 | ) | (73,375,350 | ) | ||||||||||||
Net increase (decrease) — Class Y | (35,009 | ) | (500,151 | ) | (240,581 | ) | (2,992,150 | ) | (4,949,371 | ) | (64,971,915 | ) | ||||||||||||
Net increase in (decrease) in share activity | (8,591,369 | ) | $ | (120,853,500 | ) | (18,023,909 | ) | $ | (221,613,254 | ) | (25,725,173 | ) | $ | (355,627,490 | ) | |||||||||
(a) | There is an entity that is a record owner of more than 5% of the outstanding shares of the Fund that owns 78% of the outstanding shares of the Fund. IDI has an agreement with this entity to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to this entity, which is considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity are owned beneficially. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 13—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Class A Shares | ||||||||||||||||||||||||
Six months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | For the year ended February 28, | |||||||||||||||||||||||
2010 | 2010 | 2009 | 2008(a) | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.65 | $ | 9.22 | $ | 17.45 | $ | 20.78 | $ | 33.51 | $ | 37.21 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(b) | 0.09 | 0.15 | 0.23 | 0.14 | 0.29 | 0.39 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.83 | ) | 4.47 | (7.55 | ) | (0.80 | ) | 2.07 | 1.69 | |||||||||||||||
Total income (loss) from investment operations | (0.74 | ) | 4.62 | (7.32 | ) | (0.66 | ) | 2.36 | 2.08 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.08 | ) | (0.19 | ) | (0.23 | ) | (0.25 | ) | (0.34 | ) | (0.47 | ) | ||||||||||||
Net realized gain | (0.18 | ) | — | (0.68 | ) | (2.42 | ) | (14.75 | ) | (5.31 | ) | |||||||||||||
Total dividends and distributions | (0.26 | ) | (0.19 | ) | (0.91 | ) | (2.67 | ) | (15.09 | ) | (5.78 | ) | ||||||||||||
Net asset value, end of period | $ | 12.65 | $ | 13.65 | $ | 9.22 | $ | 17.45 | $ | 20.78 | $ | 33.51 | ||||||||||||
Total Return(c) | (5.57 | )% | 50.54 | % | (44.10 | )% | (4.42 | )% | 8.55 | % | 5.94 | % | ||||||||||||
Net assets, end of period, in millions(d) | $ | 35,315 | $ | 42 | $ | 33 | $ | 61 | $ | 2,502 | $ | 3,412 | ||||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||||||
Total expenses | 0.89 | %(e)(f) | 1.01 | %(f) | 0.95 | %(f) | 0.88 | %(f) | 0.88 | % | 0.85 | % | ||||||||||||
Net investment income | 1.30 | %(e)(f) | 1.23 | %(f) | 1.52 | %(f) | 1.00 | %(f) | 1.04 | % | 1.05 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | — | |||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover(h) | 59 | % | 42 | % | 67 | % | 34 | % | 105 | % | 44 | % | ||||||||||||
(a) | For the year ended February 29. | |
(b) | Calculated using average shares outstanding. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Net assets, end of period, for the six months ended August 31, 2010 is stated in thousands. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $143,546. | |
(f) | The ratios reflect the rebate of certain Portfolio expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 13—Financial Highlights—(continued)
Class B Shares | ||||||||||||||||||||||||
Six months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | For the year ended February 28, | |||||||||||||||||||||||
2010 | 2010 | 2009 | 2008(a) | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.76 | $ | 9.29 | $ | 17.58 | $ | 20.92 | $ | 33.65 | $ | 37.34 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(b) | 0.09 | 0.15 | 0.23 | 0.22 | 0.33 | 0.39 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.84 | ) | 4.52 | (7.60 | ) | (0.87 | ) | 2.08 | 1.72 | |||||||||||||||
Total income (loss) from investment operations | (0.75 | ) | 4.67 | (7.37 | ) | (0.65 | ) | 2.41 | 2.11 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.08 | ) | (0.20 | ) | (0.24 | ) | (0.27 | ) | (0.39 | ) | (0.49 | ) | ||||||||||||
Net realized gain | (0.18 | ) | — | (0.68 | ) | (2.42 | ) | (14.75 | ) | (5.31 | ) | |||||||||||||
Total dividends and distributions | (0.26 | ) | (0.20 | ) | (0.92 | ) | (2.69 | ) | (15.14 | ) | (5.80 | ) | ||||||||||||
Net asset value, end of period | $ | 12.75 | $ | 13.76 | $ | 9.29 | $ | 17.58 | $ | 20.92 | $ | 33.65 | ||||||||||||
Total Return(c) | (5.59 | )% | 50.71 | % | (44.12 | )% | (4.39 | )% | 8.66 | % | 6.03 | % | ||||||||||||
Net assets, end of period, in millions(d) | $ | 1,091,986 | $ | 1,291 | $ | 1,029 | $ | 2,305 | $ | 848 | $ | 1,320 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 0.88 | %(e)(f) | 1.00 | %(f) | 0.94 | %(f) | 0.86 | %(f) | 0.75 | % | 0.75 | % | ||||||||||||
Net investment income | 1.31 | %(e)(f) | 1.24 | %(f) | 1.53 | %(f) | 1.02 | %(f) | 1.17 | % | 1.15 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | — | |||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(h) | 59 | % | 42 | % | 67 | % | 34 | % | 105 | % | 44 | % | ||||||||||||
(a) | For the year ended February 29. | |
(b) | Calculated using average shares outstanding. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Net assets, end of period, for the six months ended August 31, 2010 is stated in thousands. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,137,011. | |
(f) | The ratios reflect the rebate of certain Portfolio expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 13—Financial Highlights—(continued)
Class C Shares | ||||||||||||||||||||||||
Six months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | For the year ended February 28, | |||||||||||||||||||||||
2010 | 2010 | 2009 | 2008(a) | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.61 | $ | 9.18 | $ | 17.38 | $ | 20.71 | $ | 33.42 | $ | 37.11 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(b) | 0.04 | 0.06 | 0.11 | 0.05 | 0.08 | 0.11 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.84 | ) | 4.47 | (7.52 | ) | (0.87 | ) | 2.06 | 1.71 | |||||||||||||||
Total income (loss) from investment operations | (0.80 | ) | 4.53 | (7.41 | ) | (0.82 | ) | 2.14 | 1.82 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.03 | ) | (0.10 | ) | (0.11 | ) | (0.09 | ) | (0.10 | ) | (0.20 | ) | ||||||||||||
Net realized gain | (0.18 | ) | — | (0.68 | ) | (2.42 | ) | (14.75 | ) | (5.31 | ) | |||||||||||||
Total dividends and distributions | (0.21 | ) | (0.10 | ) | (0.79 | ) | (2.51 | ) | (14.85 | ) | (5.51 | ) | ||||||||||||
Net asset value, end of period | $ | 12.60 | $ | 13.61 | $ | 9.18 | $ | 17.38 | $ | 20.71 | $ | 33.42 | ||||||||||||
Total Return(c) | (6.00 | )% | 49.62 | % | (44.56 | )% | (5.17 | )% | 7.74 | % | 5.21 | % | ||||||||||||
Net assets, end of period, in millions(d) | $ | 19,445 | $ | 23 | $ | 19 | $ | 44 | $ | 60 | $ | 80 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 1.64 | %(e)(f) | 1.76 | %(f) | 1.70 | %(f) | 1.63 | %(f) | 1.64 | % | 1.59 | % | ||||||||||||
Net investment income | 0.55 | %(e)(f) | 0.48 | %(f) | 0.77 | %(f) | 0.25 | %(f) | 0.28 | % | 0.31 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | — | |||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(h) | 59 | % | 42 | % | 67 | % | 34 | % | 105 | % | 44 | % | ||||||||||||
(a) | For the year ended February 29. | |
(b) | Calculated using average shares outstanding. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Net assets, end of period, for the six months ended August 31, 2010 is stated in thousands. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $21,996. | |
(f) | The ratios reflect the rebate of certain Portfolio expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 13—Financial Highlights—(continued)
Class Y Shares | ||||||||||||||||||||||||
Six months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | For the year ended February 28, | |||||||||||||||||||||||
2010 | 2010 | 2009 | 2008(a) | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.67 | $ | 9.23 | $ | 17.47 | $ | 20.81 | $ | 33.54 | $ | 37.23 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(b) | 0.11 | 0.18 | 0.25 | 0.26 | 0.38 | 0.46 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.84 | ) | 4.48 | (7.54 | ) | (0.87 | ) | 2.06 | 1.71 | |||||||||||||||
Total income (loss) from investment operations | (0.73 | ) | 4.66 | (7.29 | ) | (0.61 | ) | 2.44 | 2.17 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.09 | ) | (0.22 | ) | (0.27 | ) | (0.31 | ) | (0.42 | ) | (0.55 | ) | ||||||||||||
Net realized gain | (0.18 | ) | — | (0.68 | ) | (2.42 | ) | (14.75 | ) | (5.31 | ) | |||||||||||||
Total dividends and distributions | (0.27 | ) | (0.22 | ) | (0.95 | ) | (2.73 | ) | (15.17 | ) | (5.86 | ) | ||||||||||||
Net asset value, end of period | $ | 12.67 | $ | 13.67 | $ | 9.23 | $ | 17.47 | $ | 20.81 | $ | 33.54 | ||||||||||||
Total Return(c) | (5.44 | )% | 50.97 | % | (43.96 | )% | (4.19 | )% | 8.84 | % | 6.22 | % | ||||||||||||
Net assets, end of period, in millions(d) | $ | 15,102 | $ | 17 | $ | 14 | $ | 112 | $ | 247 | $ | 511 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 0.64 | %(e)(f) | 0.76 | %(f) | 0.70 | %(f) | 0.63 | %(f) | 0.64 | % | 0.60 | % | ||||||||||||
Net investment income | 1.55 | %(e)(f) | 1.48 | %(f) | 1.77 | %(f) | 1.25 | %(f) | 1.28 | % | 1.30 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | — | |||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(h) | 59 | % | 42 | % | 67 | % | 34 | % | 105 | % | 44 | % | ||||||||||||
(a) | For the year ended February 29. | |
(b) | Calculated using average shares outstanding. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(d) | Net assets, end of period, for the six months ended August 31, 2010 is stated in thousands. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $16,617. | |
(f) | The ratios reflect the rebate of certain Portfolio expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 14—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Dividend Growth Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Dividend Growth Securities Fund (formerly known as Morgan Stanley Dividend Growth Securities Inc.; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended February 28, 2010 and prior were audited by other independent auditors whose report dated April 26, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
25 Invesco Dividend Growth Securities Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 944.30 | $ | 4.36 | $ | 1,020.72 | $ | 4.53 | 0.89 | % | ||||||||||||||||||
B | 1,000.00 | 943.40 | 4.31 | 1,020.77 | 4.48 | 0.88 | ||||||||||||||||||||||||
C | 1,000.00 | 940.70 | 8.02 | 1,016.94 | 8.34 | 1.64 | ||||||||||||||||||||||||
Y | 1,000.00 | 945.60 | 3.14 | 1,021.98 | 3.26 | 0.64 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
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Approval of Investment Advisory and Sub-Advisory Agreements |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Dividend Growth Securities Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed the information provided differently than another Trustee.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
27 Invesco Dividend Growth Securities Fund
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services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
28 Invesco Dividend Growth Securities Fund
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for the period ended August 31, 2010:
Federal and State Income Tax | ||||
Long-Term Capital Gain Dividends | $ | 16,549,853 | ||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Dividend Growth Securities was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 48,491,206 | 3,510,769 | 4,490,314 | 0 |
30 Invesco Dividend Growth Securities Fund
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | �� | N/A | |||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
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Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
MS-DGS-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Invesco Equally-Weighted S&P 500 Fund
Annual Report to Shareholders August 31, 2010
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
19 | Financial Statements | |
21 | Notes to Financial Statements | |
28 | Financial Highlights | |
33 | Auditor’s Report | |
34 | Fund Expenses | |
35 | Approval of Investment Advisory and Sub-Advisory Agreements | |
T-1 | Trustees and Officers | |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Philip Taylor
Senior Managing Director, Invesco
2 | Invesco Equally-Weighted S&P 500 Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Equally-Weighted S&P 500 Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
As part of Invesco’s June 1, 2010, acquisition of Morgan Stanley’s retail asset management business, Morgan Stanley Equally-Weighted S&P 500 Index Fund was renamed Invesco Equally-Weighted S&P 500 Fund. A listing of your Fund’s managers appears later in this report.
For the reporting period ended August 31, 2010, Class A shares of Invesco Equally-Weighted S&P 500 Fund at net asset value outperformed the S&P 500 Equal Weight Index and the Lipper Multi-Cap Core Funds Index. The Fund seeks to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 6/30/10 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 2.23 | % | ||
Class B Shares | 2.12 | |||
Class C Shares | 2.10 | |||
Class R Shares | 2.24 | |||
Class Y Shares | 2.29 | |||
S&P 500 Equal Weight Index▼ (Broad Market /Style-Specific Index) | 2.18 | |||
Lipper Multi-Cap Core Funds Index■ (Peer Group Index) | 1.72 | |||
▼ | Invesco, Bloomberg L.P.; ■ Lipper Inc. |
How we invest
The Fund invests in a diversified portfolio of common stocks represented in the S&P 500 Index. The S&P 500 is a well known stock market index that includes common stocks of 500 companies. The Fund generally invests in each stock included in the S&P 500 in approximately equal proportions. This approach differs from the S&P 500 because stocks in the S&P 500 are represented in proportion to their market value or market capitalization. For example, the 50 largest companies in the S&P 500 represent approximately 50 percent of the S&P 500’s value; however, these same 50 companies represent roughly 10 percent of the Fund’s value. The Fund may invest in foreign securities represented in the
S&P 500, including depositary receipts. Sale of a security in the Fund is a function of the Standard & Poor’s either adding or deleting a security from the S&P 500 Index. Securities that are added or deleted are driven by the index, not a stock selection model.
Market conditions and your Fund
The S&P 500 Index rebounded sharply in July 2010, followed by a decline in August. Despite a welcome rebound in the stock market in July, the more recent trend has been decidedly negative. Investors’ concerns about the pace of economic recovery continued, and many worried about a double-dip recession. Disappointing employment figures were a considerable overhang on the market
during the month of August. Signs of economic slowdowns in China and Japan were also cause for concern, since U.S. exporters have largely been seen as leading the recovery. In response to these troublesome signs, there was a flight to quality. Treasuries, gold and the U.S. dollar (except versus the yen) all rallied.
The Fund stayed true to its process by maintaining the same proportion to all constituents of the S&P 500 Index. On an absolute basis, all sectors in the Fund except for health care posted positive returns for the reporting period. Sectors that contributed most to overall Fund performance were the utilities, materials, information technology, consumer discretionary and consumer staples sectors. The health care sector was a detractor from the Fund’s overall positive performance.
Within the consumer discretionary sector, Priceline.com was a top contributor. Priceline.com is an online travel company, which offers a range of travel services, including hotel rooms, car rentals, airline tickets, vacation packages, cruises and destination services. Internationally, the company offers customers hotel room reservations in over 90 countries and in 32 languages. In the United States, Priceline. com offers customers the ability to purchase travel services in a price-disclosed manner or the opportunity to use the “Name Your Own Price” service, which allows customers to make offers for travel services at discounted prices.
Also contributing to the Fund’s positive performance was information technology and software and programming company, McAfee. McAfee is a security technology company. It engages in developing, marketing, distributing and supporting computer security solutions
Portfolio Composition
By sector
Financials | 15.6 | % | ||
Consumer Discretionary | 15.4 | |||
Information Technology | 14.6 | |||
Industrials | 11.1 | |||
Health Care | 9.9 | |||
Consumer Staples | 8.4 | |||
Energy | 7.4 | |||
Utilities | 7.3 | |||
Materials | 6.5 | |||
Telecommunication Services | 2.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.8 |
Top 10 Equity Holdings*
1. Priceline.com, Inc. | 0.3 | % | ||
2. CF Industries Holdings, Inc. | 0.3 | |||
3. McAfee, Inc. | 0.3 | |||
4. Genzyme Corp. | 0.3 | |||
5. Citrix Systems, Inc. | 0.3 | |||
6. Salesforce.com, Inc. | 0.2 | |||
7. Intuit, Inc. | 0.2 | |||
8. Archer-Daniels-Midland Co. | 0.2 | |||
9. CMS Energy Corp. | 0.2 | |||
10. FMC Technologies, Inc. | 0.2 |
Total Net Assets | $878.8 million | |||
Total Number of Holdings* | 500 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Equally-Weighted S&P 500 Fund |
Table of Contents
for enterprises, governments, small- and medium-sized businesses and consumers either directly or through a network of distribution partners. On August 19, 2010, Intel agreed to buy McAfee. Intel’s acquisition of McAfee is subject to regulatory and McAfee shareholder approval. The boards of both companies have already agreed to the deal.
Detracting from Fund performance were holdings in health care sector companies, Intuitive Surgical and Medco Health Solutions. Medco Health Solutions provides clinically driven pharmacy services designed to improve the quality of care and lower total health care costs for private and public employers, health plans, labor unions and government agencies of all sizes, and for individuals served by Medicare Part D Prescription Drug Plans.
As part of implementing the Fund’s strategy, the Fund may use derivatives, such as futures contracts to better manage our market exposure. The use of derivatives during the reporting period was successful.
While the global economy appeared more stable entering 2010 than it did the prior year, forecasting the future direction of the economy remained highly challenging. The bursting of the U.S. housing bubble, rising unemployment and rising taxation seemed likely to impede future economic growth, while massive fiscal and monetary stimulus seemed likely to promote economic growth.
During the fiscal year, we were cautiously optimistic about the prospects for equities. In a world of moderate but positive economic growth, low inflation and prolonged government liquidity support, we believed equities could achieve gains. Further, valuations remained reasonable by historic standards, especially after the pullback during the second quarter of 2010.
We welcome new investors who joined the Fund during the reporting period and thank all of our shareholders for your investment in Invesco Equally-Weighted S&P 500 Index Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Anthony Munchak
Chartered Financial Analyst, portfolio manager, is manager of Invesco Equally-Weighted S&P 500 Fund. He joined Invesco in 2000. Mr. Munchak earned a B.S. and M.S. in finance from Boston College and an M.B.A. from Bentley College.
Glen Murphy
Chartered Financial Analyst, portfolio manager, is manager of Invesco Equally-Weighted S&P 500 Fund. He joined Invesco in 1995. Mr. Murphy earned a B.B.A. from the University of Massachusetts and an M.S. in finance from Boston College.
Francis Orlando
Chartered Financial Analyst, portfolio manager, is manager of Invesco Equally-Weighted S&P 500 Fund. He joined Invesco in 1987. Mr. Orlando earned a B.A. in business administration from Merrimack College and an M.B.A. from Boston University.
Daniel Tsai
Chartered Financial Analyst, portfolio manager, is manager of Invesco Equally-Weighted S&P 500 Fund. He joined Invesco in 2000. Mr. Tsai earned a B.S. in mechanical engineering from National Taiwan University and an M.S. in mechanical engineering from the University of Michigan. He also earned an M.S. in computer science from Wayne State University.
Anne Unflat
Portfolio manager, is manager of Invesco Equally-Weighted S&P 500 Fund. She joined Invesco in 1988. Ms. Unflat graduated magna cum laude from Queens College with a B.A. in economics. She earned an M.B.A. in finance from St. John’s University.
5 | Invesco Equally-Weighted S&P 500 Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Index data from 11/30/87, Fund data from 12/1/87
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges.
Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating
changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000 , and so on.
6 | Invesco Equally-Weighted S&P 500 Fund |
Table of Contents
Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||
Inception (7/28/97) | 4.95 | % | ||
10 Years | 3.18 | |||
5 Years | -0.76 | |||
1 Year | 3.85 | |||
Class B Shares | ||||
Inception (12/1/87) | 9.85 | % | ||
10 Years | 3.13 | |||
5 Years | -0.65 | |||
1 Year | 4.04 | |||
Class C Shares | ||||
Inception (7/28/97) | 4.63 | % | ||
10 Years | 3.00 | |||
5 Years | -0.36 | |||
1 Year | 8.07 | |||
Class R Shares | ||||
Inception (3/31/08) | -3.15 | % | ||
1 Year | 9.60 | |||
Class Y Shares | ||||
Inception (7/28/97) | 5.65 | % | ||
10 Years | 4.01 | |||
5 Years | 0.61 | |||
1 Year | 10.14 |
Effective June 1, 2010, Class A, Class B, Class C, Class R, Class W and Class I shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class A, Class B, Class C, Class R, Class A and Class Y shares, respectively, of Invesco Equally-Weighted S&P 500 Fund. Returns shown above for Class A, Class B, Class C, Class R and Class Y shares are blended returns of the predecessor fund and Invesco Equally-Weighted S&P 500 Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||
Inception (7/28/97) | 4.83 | % | ||
10 Years | 3.67 | |||
5 Years | -0.45 | |||
1 Year | 17.13 | |||
Class B Shares | ||||
Inception (12/1/87) | 9.82 | % | ||
10 Years | 3.63 | |||
5 Years | -0.34 | |||
1 Year | 17.94 | |||
Class C Shares | ||||
Inception (7/28/97) | 4.52 | % | ||
10 Years | 3.49 | |||
5 Years | -0.05 | |||
1 Year | 21.99 | |||
Class R Shares | ||||
Inception (3/31/08) | -4.33 | % | ||
1 Year | 23.58 | |||
Class Y Shares | ||||
Inception (7/28/97) | 5.54 | % | ||
10 Years | 4.51 | |||
5 Years | 0.93 | |||
1 Year | 24.19 |
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R and Class Y shares was 0.71%, 1.46%, 1.46%, 0.96% and 0.46%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class R and Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
7 | Invesco Equally-Weighted S&P 500 Fund |
Table of Contents
Invesco Equally-Weighted S&P 500 Fund’s investment objective is to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | In general, stock and other equity security values fluctuate, and sometimes widely fluctuate, in response to activities specific to the company as well as general market, economic and political conditions. Investments in convertible securities subject the fund to the risks associated with both fixed income securities, including credit risk and interest rate risk, and common stocks. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. |
About indexes used in this report
n | The S&P 500 Equal Weight Index is the equally weighted version of the S&P 500® Index. | |
n | The Lipper Multi-Cap Core Funds Index is an unmanaged index considered representative of multi-cap core funds tracked by Lipper. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols | ||||
Class A Shares | VADAX | |||
Class B Shares | VADBX | |||
Class C Shares | VADCX | |||
Class R Shares | VADRX | |||
Class Y Shares | VADDX |
8 | Invesco Equally-Weighted S&P 500 Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.2% | ||||||||
Advertising–0.4% | ||||||||
Interpublic Group of Cos., Inc.(b) | 223,047 | $ | 1,902,591 | |||||
Omnicom Group, Inc. | 48,745 | 1,706,562 | ||||||
3,609,153 | ||||||||
Aerospace & Defense–2.3% | ||||||||
Boeing Co. (The) | 27,306 | 1,669,216 | ||||||
General Dynamics Corp. | 27,738 | 1,549,722 | ||||||
Goodrich Corp. | 26,074 | 1,785,547 | ||||||
Honeywell International, Inc. | 43,237 | 1,690,134 | ||||||
ITT Corp. | 38,238 | 1,625,115 | ||||||
L-3 Communications Holdings, Inc. | 22,738 | 1,514,351 | ||||||
Lockheed Martin Corp. | 22,998 | 1,598,821 | ||||||
Northrop Grumman Corp. | 29,892 | 1,617,755 | ||||||
Precision Castparts Corp. | 16,170 | 1,830,121 | ||||||
Raytheon Co. | 34,849 | 1,530,568 | ||||||
Rockwell Collins, Inc. | 31,683 | 1,708,664 | ||||||
United Technologies Corp. | 26,824 | 1,749,193 | ||||||
19,869,207 | ||||||||
Agricultural Products–0.2% | ||||||||
Archer-Daniels-Midland Co. | 68,250 | 2,100,735 | ||||||
Air Freight & Logistics–0.9% | ||||||||
C.H. Robinson Worldwide, Inc. | 31,420 | 2,041,986 | ||||||
Expeditors International of Washington, Inc. | 48,051 | 1,902,339 | ||||||
FedEx Corp. | 23,579 | 1,840,341 | ||||||
United Parcel Service, Inc. (Class B) | 29,691 | 1,894,286 | ||||||
7,678,952 | ||||||||
Airlines–0.2% | ||||||||
Southwest Airlines Co. | 151,366 | 1,672,594 | ||||||
Aluminum–0.2% | ||||||||
Alcoa, Inc. | 167,035 | 1,705,427 | ||||||
Apparel Retail–1.1% | ||||||||
Abercrombie & Fitch Co. (Class A) | 52,526 | 1,817,400 | ||||||
Gap, Inc. (The) | 87,370 | 1,475,679 | ||||||
Limited Brands, Inc. | 75,253 | 1,775,971 | ||||||
Ross Stores, Inc. | 32,380 | 1,607,019 | ||||||
TJX Cos., Inc. | 40,376 | 1,602,524 | ||||||
Urban Outfitters, Inc.(b) | 50,800 | 1,540,256 | ||||||
9,818,849 | ||||||||
Apparel, Accessories & Luxury Goods–0.6% | ||||||||
Coach, Inc. | 43,047 | 1,542,804 | ||||||
Polo Ralph Lauren Corp. | 23,066 | 1,747,019 | ||||||
VF Corp. | 23,442 | 1,655,474 | ||||||
4,945,297 | ||||||||
Application Software–1.3% | ||||||||
Adobe Systems, Inc.(b) | 55,362 | 1,536,849 | ||||||
Autodesk, Inc.(b) | 63,465 | 1,761,154 | ||||||
Citrix Systems, Inc.(b) | 40,262 | 2,332,780 | ||||||
Compuware Corp.(b) | 214,043 | 1,536,829 | ||||||
Intuit, Inc.(b) | 49,420 | 2,115,176 | ||||||
Salesforce.com, Inc.(b) | 19,386 | 2,130,134 | ||||||
11,412,922 | ||||||||
Asset Management & Custody Banks–2.0% | ||||||||
Ameriprise Financial, Inc. | 46,673 | 2,034,009 | ||||||
Bank of New York Mellon Corp. (The) | 69,817 | 1,694,459 | ||||||
Federated Investors, Inc. (Class B) | 83,781 | 1,746,834 | ||||||
Franklin Resources, Inc. | 19,889 | 1,919,487 | ||||||
Invesco Ltd. | 96,603 | 1,748,514 | ||||||
Janus Capital Group, Inc. | 181,580 | 1,648,747 | ||||||
Legg Mason, Inc. | 57,992 | 1,468,937 | ||||||
Northern Trust Corp. | 36,892 | 1,702,197 | ||||||
State Street Corp. | 49,885 | 1,749,966 | ||||||
T. Rowe Price Group, Inc. | 37,610 | 1,646,566 | ||||||
17,359,716 | ||||||||
Auto Parts & Equipment–0.2% | ||||||||
Johnson Controls, Inc. | 64,279 | 1,705,322 | ||||||
Automobile Manufacturers–0.2% | ||||||||
Ford Motor Co.(b) | 161,932 | 1,828,212 | ||||||
Automotive Retail–0.6% | ||||||||
AutoNation, Inc.(b) | 87,618 | 1,978,414 | ||||||
AutoZone, Inc.(b) | 9,501 | 1,993,120 | ||||||
O’Reilly Automotive, Inc.(b) | 37,166 | 1,756,837 | ||||||
5,728,371 | ||||||||
Biotechnology–1.3% | ||||||||
Amgen, Inc.(b) | 33,618 | 1,715,863 | ||||||
Biogen Idec, Inc.(b) | 37,218 | 2,002,328 | ||||||
Celgene Corp.(b) | 33,526 | 1,727,260 | ||||||
Cephalon, Inc.(b) | 30,995 | 1,754,627 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Equally-Weighted S&P 500 Fund
Table of Contents
Shares | Value | |||||||
Biotechnology–(continued) | ||||||||
Genzyme Corp.(b) | 35,146 | $ | 2,464,086 | |||||
Gilead Sciences, Inc.(b) | 51,562 | 1,642,765 | ||||||
11,306,929 | ||||||||
Brewers–0.2% | ||||||||
Molson Coors Brewing Co. (Class B) | 41,655 | 1,814,492 | ||||||
Broadcasting–0.4% | ||||||||
CBS Corp. (Class B) | 124,296 | 1,717,771 | ||||||
Discovery Communications, Inc. (Class A)(b) | 47,268 | 1,784,367 | ||||||
3,502,138 | ||||||||
Building Products–0.2% | ||||||||
Masco Corp. | 150,629 | 1,580,098 | ||||||
Cable & Satellite–0.8% | ||||||||
Comcast Corp. (Class A) | 100,256 | 1,716,383 | ||||||
DirecTV (Class A)(b) | 49,579 | 1,880,036 | ||||||
Scripps Networks Interactive, Inc. (Class A) | 40,946 | 1,645,210 | ||||||
Time Warner Cable, Inc. | 33,642 | 1,736,263 | ||||||
6,977,892 | ||||||||
Casinos & Gaming–0.4% | ||||||||
International Game Technology | 101,130 | 1,476,498 | ||||||
Wynn Resorts Ltd. | 21,824 | 1,759,233 | ||||||
3,235,731 | ||||||||
Coal & Consumable Fuels–0.6% | ||||||||
Consol Energy, Inc. | 47,449 | 1,527,858 | ||||||
Massey Energy Co. | 59,289 | 1,704,559 | ||||||
Peabody Energy Corp. | 44,977 | 1,925,015 | ||||||
5,157,432 | ||||||||
Commercial Printing–0.2% | ||||||||
RR Donnelley & Sons Co. | 101,964 | 1,544,245 | ||||||
Communications Equipment–1.6% | ||||||||
Cisco Systems, Inc.(b) | 79,001 | 1,583,970 | ||||||
Corning, Inc. | 101,796 | 1,596,161 | ||||||
Harris Corp. | 38,270 | 1,610,019 | ||||||
JDS Uniphase Corp.(b) | 159,703 | 1,467,671 | ||||||
Juniper Networks, Inc.(b) | 72,774 | 1,979,453 | ||||||
Motorola, Inc.(b) | 255,614 | 1,924,773 | ||||||
QUALCOMM, Inc. | 51,996 | 1,991,967 | ||||||
Tellabs, Inc. | 266,249 | 1,890,368 | ||||||
14,044,382 | ||||||||
Computer & Electronics Retail–0.5% | ||||||||
Best Buy Co., Inc. | 49,055 | 1,539,836 | ||||||
GameStop Corp. (Class A)(b) | 96,603 | 1,732,092 | ||||||
RadioShack Corp. | 84,123 | 1,554,593 | ||||||
4,826,521 | ||||||||
Computer Hardware–0.9% | ||||||||
Apple, Inc.(b) | 6,768 | 1,647,128 | ||||||
Dell, Inc.(b) | 132,176 | 1,555,712 | ||||||
Hewlett-Packard Co. | 38,676 | 1,488,252 | ||||||
International Business Machines Corp. | 14,258 | 1,757,013 | ||||||
Teradata Corp.(b) | 54,613 | 1,788,030 | ||||||
8,236,135 | ||||||||
Computer Storage & Peripherals–1.1% | ||||||||
EMC Corp.(b) | 95,904 | 1,749,289 | ||||||
Lexmark International, Inc.(b) | 48,503 | 1,697,120 | ||||||
NetApp, Inc.(b) | 45,020 | 1,820,609 | ||||||
QLogic Corp.(b) | 102,641 | 1,528,838 | ||||||
SanDisk Corp.(b) | 37,856 | 1,258,333 | ||||||
Western Digital Corp.(b) | 53,006 | 1,280,095 | ||||||
9,334,284 | ||||||||
Construction & Engineering–0.5% | ||||||||
Fluor Corp. | 39,933 | 1,783,408 | ||||||
Jacobs Engineering Group, Inc.(b) | 44,588 | 1,546,312 | ||||||
Quanta Services, Inc.(b) | 81,213 | 1,456,961 | ||||||
4,786,681 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.8% | ||||||||
Caterpillar, Inc. | 28,180 | 1,836,209 | ||||||
Cummins, Inc. | 24,975 | 1,858,389 | ||||||
Deere & Co. | 31,314 | 1,981,237 | ||||||
PACCAR, Inc. | 42,514 | 1,742,649 | ||||||
7,418,484 | ||||||||
Construction Materials–0.2% | ||||||||
Vulcan Materials Co. | 39,043 | 1,435,221 | ||||||
Consumer Electronics–0.2% | ||||||||
Harman International Industries, Inc.(b) | 54,261 | 1,691,315 | ||||||
Consumer Finance–0.8% | ||||||||
American Express Co. | 44,153 | 1,760,380 | ||||||
Capital One Financial Corp. | 43,521 | 1,647,705 | ||||||
Discover Financial Services | 132,554 | 1,923,359 | ||||||
SLM Corp.(b) | 155,683 | 1,720,297 | ||||||
7,051,741 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Equally-Weighted S&P 500 Fund
Table of Contents
Shares | Value | |||||||
Data Processing & Outsourced Services–1.7% | ||||||||
Automatic Data Processing, Inc. | 43,892 | $ | 1,694,670 | |||||
Computer Sciences Corp. | 36,725 | 1,462,022 | ||||||
Fidelity National Information Services, Inc. | 67,530 | 1,744,975 | ||||||
Fiserv, Inc.(b) | 37,964 | 1,899,339 | ||||||
Mastercard, Inc. (Class A) | 8,661 | 1,717,996 | ||||||
Paychex, Inc. | 65,504 | 1,630,395 | ||||||
Total System Services, Inc. | 124,967 | 1,774,532 | ||||||
Visa, Inc. (Class A) | 24,087 | 1,661,521 | ||||||
Western Union Co. (The) | 114,552 | 1,796,175 | ||||||
15,381,625 | ||||||||
Department Stores–0.9% | ||||||||
JC Penney Co., Inc. | 70,938 | 1,418,760 | ||||||
Kohl’s Corp.(b) | 35,212 | 1,654,260 | ||||||
Macy’s, Inc. | 86,475 | 1,681,074 | ||||||
Nordstrom, Inc. | 48,001 | 1,388,189 | ||||||
Sears Holdings Corp.(b) | 24,465 | 1,514,383 | ||||||
7,656,666 | ||||||||
Distillers & Vintners–0.4% | ||||||||
Brown-Forman Corp. (Class B) | 31,204 | 1,912,493 | ||||||
Constellation Brands, Inc.(b) | 113,849 | 1,896,725 | ||||||
3,809,218 | ||||||||
Distributors–0.2% | ||||||||
Genuine Parts Co. | 44,523 | 1,866,849 | ||||||
Diversified Banks–0.5% | ||||||||
Comerica, Inc. | 47,316 | 1,628,144 | ||||||
US Bancorp | 78,733 | 1,637,646 | ||||||
Wells Fargo & Co. | 66,111 | 1,556,914 | ||||||
4,822,704 | ||||||||
Diversified Chemicals–1.0% | ||||||||
Dow Chemical Co. (The) | 68,731 | 1,674,974 | ||||||
Eastman Chemical Co. | 29,610 | 1,822,496 | ||||||
EI Du Pont de Nemours & Co. | 48,377 | 1,972,330 | ||||||
FMC Corp. | 29,719 | 1,850,899 | ||||||
PPG Industries, Inc. | 27,838 | 1,832,576 | ||||||
9,153,275 | ||||||||
Diversified Metals & Mining–0.4% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 28,159 | 2,026,885 | ||||||
Titanium Metals Corp.(b) | 92,787 | 1,681,300 | ||||||
3,708,185 | ||||||||
Diversified Support Services–0.4% | ||||||||
Cintas Corp. | 71,101 | 1,812,364 | ||||||
Iron Mountain, Inc. | 76,242 | 1,546,188 | ||||||
3,358,552 | ||||||||
Drug Retail–0.4% | ||||||||
CVS Caremark Corp. | 57,223 | 1,545,021 | ||||||
Walgreen Co. | 61,673 | 1,657,770 | ||||||
3,202,791 | ||||||||
Education Services–0.3% | ||||||||
Apollo Group, Inc. (Class A)(b) | 38,349 | 1,629,065 | ||||||
DeVry, Inc. | 32,425 | 1,235,717 | ||||||
2,864,782 | ||||||||
Electric Utilities–3.0% | ||||||||
Allegheny Energy, Inc. | 83,292 | 1,878,235 | ||||||
American Electric Power Co., Inc. | 54,484 | 1,929,278 | ||||||
Duke Energy Corp. | 111,523 | 1,917,080 | ||||||
Edison International | 54,024 | 1,823,310 | ||||||
Entergy Corp. | 23,760 | 1,873,238 | ||||||
Exelon Corp. | 44,998 | 1,832,318 | ||||||
FirstEnergy Corp. | 48,239 | 1,762,171 | ||||||
NextEra Energy, Inc. | 35,340 | 1,898,818 | ||||||
Northeast Utilities | 69,063 | 2,000,755 | ||||||
Pepco Holdings, Inc. | 110,857 | 1,989,883 | ||||||
Pinnacle West Capital Corp. | 49,315 | 1,965,203 | ||||||
PPL Corp. | 71,210 | 1,934,064 | ||||||
Progress Energy, Inc. | 46,002 | 1,973,946 | ||||||
Southern Co. | 54,404 | 1,996,083 | ||||||
26,774,382 | ||||||||
Electrical Components & Equipment–0.6% | ||||||||
Emerson Electric Co. | 39,092 | 1,823,642 | ||||||
First Solar, Inc.(b) | 15,004 | 1,918,261 | ||||||
Rockwell Automation, Inc. | 34,473 | 1,762,949 | ||||||
5,504,852 | ||||||||
Electronic Components–0.2% | ||||||||
Amphenol Corp. (Class A) | 43,521 | 1,772,175 | ||||||
Electronic Equipment & Instruments–0.4% | ||||||||
Agilent Technologies, Inc.(b) | 56,907 | 1,534,782 | ||||||
FLIR Systems, Inc.(b) | 64,346 | 1,616,371 | ||||||
3,151,153 | ||||||||
Electronic Manufacturing Services–0.3% | ||||||||
Jabil Circuit, Inc. | 132,933 | 1,362,563 | ||||||
Molex, Inc. | 89,434 | 1,578,510 | ||||||
2,941,073 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Equally-Weighted S&P 500 Fund
Table of Contents
Shares | Value | |||||||
Environmental & Facilities Services–0.6% | ||||||||
Republic Services, Inc. | 58,875 | $ | 1,732,691 | |||||
Stericycle, Inc.(b) | 28,357 | 1,857,384 | ||||||
Waste Management, Inc. | 55,345 | 1,831,366 | ||||||
5,421,441 | ||||||||
Fertilizers & Agricultural Chemicals–0.5% | ||||||||
CF Industries Holdings, Inc. | 28,882 | 2,671,585 | ||||||
Monsanto Co. | 36,827 | 1,938,942 | ||||||
4,610,527 | ||||||||
Food–Retail–0.7% | ||||||||
Kroger Co. (The) | 92,510 | 1,825,222 | ||||||
Safeway, Inc. | 89,090 | 1,674,892 | ||||||
SUPERVALU, Inc. | 144,304 | 1,402,635 | ||||||
Whole Foods Market, Inc.(b) | 45,980 | 1,599,644 | ||||||
6,502,393 | ||||||||
Food Distributors–0.2% | ||||||||
Sysco Corp. | 59,651 | 1,639,806 | ||||||
Footwear–0.2% | ||||||||
NIKE, Inc. (Class B) | 24,762 | 1,733,340 | ||||||
Forest Products–0.1% | ||||||||
Weyerhaeuser Co. | 47,280 | 742,296 | ||||||
Gas Utilities–0.4% | ||||||||
EQT Corp. | 45,295 | 1,476,617 | ||||||
Nicor, Inc. | 43,217 | 1,827,647 | ||||||
3,304,264 | ||||||||
General Merchandise Stores–0.6% | ||||||||
Big Lots, Inc.(b) | 53,696 | 1,678,537 | ||||||
Family Dollar Stores, Inc. | 47,100 | 2,015,409 | ||||||
Target Corp. | 34,576 | 1,768,908 | ||||||
5,462,854 | ||||||||
Gold–0.2% | ||||||||
Newmont Mining Corp. | 30,297 | 1,857,812 | ||||||
Health Care Distributors–0.7% | ||||||||
AmerisourceBergen Corp. | 56,994 | 1,554,796 | ||||||
Cardinal Health, Inc. | 51,880 | 1,554,325 | ||||||
McKesson Corp. | 26,476 | 1,536,932 | ||||||
Patterson Cos., Inc. | 60,349 | 1,526,226 | ||||||
6,172,279 | ||||||||
Health Care Equipment–2.3% | ||||||||
Baxter International, Inc. | 44,174 | 1,880,045 | ||||||
Becton Dickinson and Co. | 26,019 | 1,774,236 | ||||||
Boston Scientific Corp.(b) | 293,169 | 1,521,547 | ||||||
C.R. Bard, Inc. | 23,109 | 1,775,465 | ||||||
CareFusion Corp.(b) | 75,192 | 1,622,643 | ||||||
Hospira, Inc.(b) | 32,908 | 1,690,155 | ||||||
Intuitive Surgical, Inc.(b) | 5,303 | 1,405,454 | ||||||
Medtronic, Inc. | 47,742 | 1,502,918 | ||||||
St Jude Medical, Inc.(b) | 49,632 | 1,715,778 | ||||||
Stryker Corp. | 35,810 | 1,546,634 | ||||||
Varian Medical Systems, Inc.(b) | 34,764 | 1,850,835 | ||||||
Zimmer Holdings, Inc.(b) | 33,709 | 1,590,054 | ||||||
19,875,764 | ||||||||
Health Care Facilities–0.2% | ||||||||
Tenet Healthcare Corp.(b) | 378,726 | 1,484,606 | ||||||
Health Care Services–1.1% | ||||||||
Cerner Corp(b) | 23,018 | 1,676,861 | ||||||
DaVita, Inc.(b) | 27,851 | 1,799,732 | ||||||
Express Scripts, Inc.(b) | 35,673 | 1,519,670 | ||||||
Laboratory Corp. of America Holdings(b) | 23,124 | 1,679,265 | ||||||
Medco Health Solutions, Inc.(b) | 30,902 | 1,343,619 | ||||||
Quest Diagnostics, Inc. | 34,954 | 1,520,499 | ||||||
9,539,646 | ||||||||
Health Care Supplies–0.2% | ||||||||
DENTSPLY International, Inc. | 58,504 | 1,627,581 | ||||||
Home Building–0.6% | ||||||||
DR Horton, Inc. | 172,628 | 1,771,163 | ||||||
Lennar Corp. (Class A) | 125,899 | 1,658,090 | ||||||
Pulte Group, Inc.(b) | 198,264 | 1,592,060 | ||||||
5,021,313 | ||||||||
Home Entertainment Software–0.2% | ||||||||
Electronic Arts, Inc.(b) | 115,767 | 1,764,289 | ||||||
Home Furnishings–0.2% | ||||||||
Leggett & Platt, Inc. | 82,440 | 1,580,375 | ||||||
Home Improvement Retail–0.6% | ||||||||
Home Depot, Inc. | 58,101 | 1,615,789 | ||||||
Lowe’s Cos., Inc. | 82,039 | 1,665,392 | ||||||
Sherwin-Williams Co. (The) | 24,359 | 1,714,386 | ||||||
4,995,567 | ||||||||
Homefurnishing Retail–0.2% | ||||||||
Bed Bath & Beyond, Inc.(b) | 43,634 | 1,569,515 | ||||||
Hotels, Resorts & Cruise Lines–0.8% | ||||||||
Carnival Corp. (Units) | 52,407 | 1,634,050 | ||||||
Marriott International, Inc. (Class A) | 52,570 | 1,682,766 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Equally-Weighted S&P 500 Fund
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Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 38,428 | $ | 1,795,741 | |||||
Wyndham Worldwide Corp. | 76,969 | 1,784,911 | ||||||
6,897,468 | ||||||||
Household Appliances–0.5% | ||||||||
Snap-On, Inc. | 42,397 | 1,748,028 | ||||||
Stanley Black & Decker, Inc. | 33,143 | 1,777,791 | ||||||
Whirlpool Corp. | 18,308 | 1,357,721 | ||||||
4,883,540 | ||||||||
Household Products–0.8% | ||||||||
Clorox Co. | 28,518 | 1,848,537 | ||||||
Colgate-Palmolive Co. | 23,026 | 1,700,240 | ||||||
Kimberly-Clark Corp. | 29,559 | 1,903,599 | ||||||
Procter & Gamble Co. (The) | 30,272 | 1,806,330 | ||||||
7,258,706 | ||||||||
Housewares & Specialties–0.4% | ||||||||
Fortune Brands, Inc. | 41,101 | 1,840,914 | ||||||
Newell Rubbermaid, Inc. | 109,226 | 1,640,574 | ||||||
3,481,488 | ||||||||
Human Resource & Employment Services–0.4% | ||||||||
Monster Worldwide, Inc.(b) | 140,268 | 1,547,156 | ||||||
Robert Half International, Inc. | 75,070 | 1,620,011 | ||||||
3,167,167 | ||||||||
Hypermarkets & Super Centers–0.4% | ||||||||
Costco Wholesale Corp. | 31,879 | 1,802,757 | ||||||
Wal-Mart Stores, Inc. | 35,998 | 1,804,940 | ||||||
3,607,697 | ||||||||
Independent Power Producers & Energy Traders–0.5% | ||||||||
AES Corp. (The)(b) | 176,570 | 1,808,077 | ||||||
Constellation Energy Group, Inc. | 50,648 | 1,485,506 | ||||||
NRG Energy, Inc.(b) | 78,499 | 1,595,099 | ||||||
4,888,682 | ||||||||
Industrial Conglomerates–0.8% | ||||||||
3M Co. | 22,859 | 1,795,575 | ||||||
General Electric Co.(c) | 116,347 | 1,684,705 | ||||||
Textron, Inc. | 92,648 | 1,581,501 | ||||||
Tyco International Ltd. (Luxembourg) | 43,723 | 1,629,993 | ||||||
6,691,774 | ||||||||
Industrial Gases–0.4% | ||||||||
Air Products & Chemicals, Inc. | 25,939 | 1,920,264 | ||||||
Praxair, Inc. | 22,862 | 1,966,818 | ||||||
3,887,082 | ||||||||
Industrial Machinery–1.6% | ||||||||
Danaher Corp. | 45,584 | 1,656,067 | ||||||
Dover Corp. | 40,668 | 1,820,300 | ||||||
Eaton Corp. | 24,969 | 1,734,846 | ||||||
Flowserve Corp. | 19,614 | 1,753,099 | ||||||
Illinois Tool Works, Inc. | 41,001 | 1,691,701 | ||||||
Pall Corp. | 49,818 | 1,703,277 | ||||||
Parker Hannifin Corp. | 30,491 | 1,803,848 | ||||||
Roper Industries, Inc. | 30,612 | 1,777,945 | ||||||
13,941,083 | ||||||||
Industrial REIT’s–0.2% | ||||||||
ProLogis | 160,810 | 1,744,789 | ||||||
Insurance Brokers–0.4% | ||||||||
AON Corp. | 46,697 | 1,692,299 | ||||||
Marsh & McLennan Cos., Inc. | 80,196 | 1,902,249 | ||||||
3,594,548 | ||||||||
Integrated Oil & Gas–1.4% | ||||||||
Chevron Corp. | 24,572 | 1,822,260 | ||||||
ConocoPhillips | 33,131 | 1,737,058 | ||||||
Exxon Mobil Corp. | 29,409 | 1,739,836 | ||||||
Hess Corp. | 33,031 | 1,659,808 | ||||||
Marathon Oil Corp. | 54,920 | 1,674,511 | ||||||
Murphy Oil Corp. | 33,316 | 1,784,405 | ||||||
Occidental Petroleum Corp. | 21,334 | 1,559,089 | ||||||
11,976,967 | ||||||||
Integrated Telecommunication Services–1.3% | ||||||||
AT&T, Inc. | 72,974 | 1,972,487 | ||||||
CenturyTel, Inc. | 53,066 | 1,918,866 | ||||||
Frontier Communications Corp. | 237,005 | 1,832,049 | ||||||
Qwest Communications International, Inc. | 343,659 | 1,941,673 | ||||||
Verizon Communications, Inc. | 68,153 | 2,011,195 | ||||||
Windstream Corp. | 163,790 | 1,889,318 | ||||||
11,565,588 | ||||||||
Internet Retail–0.8% | ||||||||
Amazon.com, Inc.(b) | 14,747 | 1,840,868 | ||||||
Expedia, Inc. | 88,495 | 2,022,996 | ||||||
Priceline.com, Inc.(b) | 9,610 | 2,801,123 | ||||||
6,664,987 | ||||||||
Internet Software & Services–1.0% | ||||||||
Akamai Technologies, Inc.(b) | 40,588 | 1,869,889 | ||||||
eBay, Inc.(b) | 83,743 | 1,946,187 | ||||||
Google, Inc. (Class A)(b) | 3,711 | 1,670,024 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Equally-Weighted S&P 500 Fund
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Shares | Value | |||||||
Internet Software & Services–(continued) | ||||||||
VeriSign, Inc.(b) | 63,142 | $ | 1,839,327 | |||||
Yahoo!, Inc.(b) | 119,417 | 1,561,975 | ||||||
8,887,402 | ||||||||
Investment Banking & Brokerage–0.8% | ||||||||
Charles Schwab Corp. (The) | 120,113 | 1,532,642 | ||||||
E*Trade Financial Corp.(b) | 134,183 | 1,665,211 | ||||||
Goldman Sachs Group, Inc. (The) | 13,429 | 1,838,967 | ||||||
Morgan Stanley | 72,207 | 1,782,791 | ||||||
6,819,611 | ||||||||
IT Consulting & Other Services–0.4% | ||||||||
Cognizant Technology Solutions Corp. (Class A)(b) | 34,640 | 1,995,437 | ||||||
SAIC, Inc.(b) | 103,154 | 1,534,932 | ||||||
3,530,369 | ||||||||
Leisure Products–0.4% | ||||||||
Hasbro, Inc. | 43,277 | 1,746,660 | ||||||
Mattel, Inc. | 82,477 | 1,731,192 | ||||||
3,477,852 | ||||||||
Life & Health Insurance–1.3% | ||||||||
Aflac, Inc. | 41,796 | 1,974,861 | ||||||
Lincoln National Corp. | 66,729 | 1,558,789 | ||||||
MetLife, Inc. | 45,273 | 1,702,265 | ||||||
Principal Financial Group, Inc. | 70,426 | 1,623,319 | ||||||
Prudential Financial, Inc. | 31,426 | 1,589,213 | ||||||
Torchmark Corp. | 35,106 | 1,732,481 | ||||||
Unum Group | 78,699 | 1,577,915 | ||||||
11,758,843 | ||||||||
Life Sciences Tools & Services–0.7% | ||||||||
Life Technologies Corp.(b) | 35,970 | 1,538,437 | ||||||
PerkinElmer, Inc. | 81,678 | 1,716,055 | ||||||
Thermo Fisher Scientific, Inc.(b) | 34,582 | 1,456,594 | ||||||
Waters Corp.(b) | 25,878 | 1,566,136 | ||||||
6,277,222 | ||||||||
Managed Health Care–1.2% | ||||||||
Aetna, Inc. | 60,984 | 1,629,493 | ||||||
CIGNA Corp. | 52,705 | 1,698,155 | ||||||
Coventry Health Care, Inc.(b) | 91,102 | 1,762,824 | ||||||
Humana, Inc.(b) | 37,679 | 1,800,679 | ||||||
UnitedHealth Group, Inc. | 59,232 | 1,878,839 | ||||||
WellPoint, Inc.(b) | 33,605 | 1,669,496 | ||||||
10,439,486 | ||||||||
Metal & Glass Containers–0.6% | ||||||||
Ball Corp. | 33,654 | 1,887,316 | ||||||
Owens-Illinois, Inc.(b) | 61,407 | 1,538,860 | ||||||
Pactiv Corp.(b) | 62,778 | 2,013,918 | ||||||
5,440,094 | ||||||||
Motorcycle Manufacturers–0.2% | ||||||||
Harley-Davidson, Inc. | 69,218 | 1,683,382 | ||||||
Movies & Entertainment–0.8% | ||||||||
News Corp. (Class A) | 132,554 | 1,666,204 | ||||||
Time Warner, Inc. | 56,303 | 1,687,964 | ||||||
Viacom, Inc. (Class B) | 52,113 | 1,637,390 | ||||||
Walt Disney Co. (The) | 52,795 | 1,720,589 | ||||||
6,712,147 | ||||||||
Multi-line Insurance–0.9% | ||||||||
American International Group, Inc.(b) | 48,951 | 1,660,907 | ||||||
Assurant, Inc. | 50,087 | 1,831,181 | ||||||
Genworth Financial, Inc. (Class A)(b) | 121,449 | 1,315,293 | ||||||
Hartford Financial Services Group, Inc. | 73,875 | 1,489,320 | ||||||
Loews Corp. | 54,741 | 1,923,599 | ||||||
8,220,300 | ||||||||
Multi-Sector Holdings–0.2% | ||||||||
Leucadia National Corp.(b) | 85,875 | 1,833,431 | ||||||
Multi-Utilities–3.5% | ||||||||
Ameren Corp. | 72,660 | 2,039,566 | ||||||
Centerpoint Energy, Inc. | 132,459 | 1,959,069 | ||||||
CMS Energy Corp. | 119,417 | 2,089,797 | ||||||
Consolidated Edison, Inc. | 41,339 | 1,964,843 | ||||||
Dominion Resources, Inc. | 44,184 | 1,889,308 | ||||||
DTE Energy Co. | 38,380 | 1,798,103 | ||||||
Integrys Energy Group, Inc. | 39,685 | 1,922,738 | ||||||
NiSource, Inc. | 119,417 | 2,070,691 | ||||||
Oneok, Inc. | 39,483 | 1,694,216 | ||||||
PG&E Corp. | 42,977 | 2,009,604 | ||||||
Public Service Enterprise Group, Inc. | 55,197 | 1,764,096 | ||||||
SCANA Corp. | 49,342 | 1,925,818 | ||||||
Sempra Energy | 37,040 | 1,886,077 | ||||||
TECO Energy, Inc. | 114,623 | 1,934,836 | ||||||
Wisconsin Energy Corp. | 35,845 | 1,998,000 | ||||||
Xcel Energy, Inc. | 86,034 | 1,919,419 | ||||||
30,866,181 | ||||||||
Office Electronics–0.2% | ||||||||
Xerox Corp. | 196,792 | 1,660,924 | ||||||
Office REIT’s–0.2% | ||||||||
Boston Properties, Inc. | 23,170 | 1,886,038 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Equally-Weighted S&P 500 Fund
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Shares | Value | |||||||
Office Services & Supplies–0.4% | ||||||||
Avery Dennison Corp. | 52,735 | $ | 1,714,942 | |||||
Pitney Bowes, Inc. | 79,885 | 1,536,988 | ||||||
3,251,930 | ||||||||
Oil & Gas Drilling–0.7% | ||||||||
Diamond Offshore Drilling, Inc. | 29,054 | 1,690,362 | ||||||
Helmerich & Payne, Inc. | 43,654 | 1,616,944 | ||||||
Nabors Industries Ltd. (Bermuda)(b) | 86,274 | 1,352,776 | ||||||
Rowan Cos., Inc.(b) | 73,465 | 1,888,785 | ||||||
6,548,867 | ||||||||
Oil & Gas Equipment & Services–1.2% | ||||||||
Baker Hughes, Inc. | 41,543 | 1,561,186 | ||||||
Cameron International Corp.(b) | 48,874 | 1,797,586 | ||||||
FMC Technologies, Inc.(b) | 33,648 | 2,081,129 | ||||||
Halliburton Co. | 68,782 | 1,940,340 | ||||||
National Oilwell Varco, Inc. | 48,707 | 1,830,896 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 30,657 | 1,634,938 | ||||||
10,846,075 | ||||||||
Oil & Gas Exploration & Production–2.2% | ||||||||
Anadarko Petroleum Corp. | 43,593 | 2,004,842 | ||||||
Apache Corp. | 19,019 | 1,708,857 | ||||||
Cabot Oil & Gas Corp. | 50,940 | 1,418,170 | ||||||
Chesapeake Energy Corp. | 75,405 | 1,559,376 | ||||||
Denbury Resources, Inc.(b) | 106,164 | 1,564,857 | ||||||
Devon Energy Corp. | 26,540 | 1,599,831 | ||||||
EOG Resources, Inc. | 16,836 | 1,462,543 | ||||||
Noble Energy, Inc. | 28,125 | 1,962,563 | ||||||
Pioneer Natural Resources Co. | 25,899 | 1,497,480 | ||||||
QEP Resources | 55,227 | 1,603,240 | ||||||
Range Resources Corp. | 37,956 | 1,283,292 | ||||||
Southwestern Energy Co.(b) | 42,099 | 1,377,479 | ||||||
19,042,530 | ||||||||
Oil & Gas Refining & Marketing–0.6% | ||||||||
Sunoco, Inc. | 53,006 | 1,785,242 | ||||||
Tesoro Corp. | 150,874 | 1,694,315 | ||||||
Valero Energy Corp. | 103,154 | 1,626,739 | ||||||
5,106,296 | ||||||||
Oil & Gas Storage & Transportation–0.6% | ||||||||
El Paso Corp. | 146,352 | 1,666,949 | ||||||
Spectra Energy Corp. | 85,558 | 1,740,250 | ||||||
Williams Cos., Inc. (The) | 86,636 | 1,570,711 | ||||||
4,977,910 | ||||||||
Other Diversified Financial Services–0.6% | ||||||||
Bank of America Corp. | 117,303 | 1,460,422 | ||||||
Citigroup, Inc.(b) | 462,783 | 1,721,553 | ||||||
JPMorgan Chase & Co. | 47,364 | 1,722,155 | ||||||
4,904,130 | ||||||||
Packaged Foods & Meats–2.8% | ||||||||
Campbell Soup Co. | 49,952 | 1,861,212 | ||||||
ConAgra Foods, Inc. | 74,318 | 1,604,526 | ||||||
Dean Foods Co.(b) | 171,829 | 1,757,811 | ||||||
General Mills, Inc. | 48,151 | 1,741,140 | ||||||
Hershey Co. (The) | 36,951 | 1,717,113 | ||||||
HJ Heinz Co. | 40,123 | 1,855,288 | ||||||
Hormel Foods Corp. | 44,027 | 1,899,765 | ||||||
JM Smucker Co. (The) | 29,882 | 1,747,499 | ||||||
Kellogg Co. | 34,068 | 1,692,498 | ||||||
Kraft Foods, Inc. (Class A) | 61,837 | 1,852,018 | ||||||
McCormick & Co., Inc. | 45,775 | 1,825,049 | ||||||
Mead Johnson Nutrition Co. | 34,118 | 1,780,618 | ||||||
Sara Lee Corp. | 125,558 | 1,813,058 | ||||||
Tyson Foods, Inc. (Class A) | 101,296 | 1,659,228 | ||||||
24,806,823 | ||||||||
Paper Packaging–0.4% | ||||||||
Bemis Co., Inc. | 63,228 | 1,825,393 | ||||||
Sealed Air Corp. | 86,234 | 1,768,659 | ||||||
3,594,052 | ||||||||
Paper Products–0.4% | ||||||||
International Paper Co. | 72,123 | 1,475,637 | ||||||
MeadWestvaco Corp. | 76,242 | 1,659,026 | ||||||
3,134,663 | ||||||||
Personal Products–0.4% | ||||||||
Avon Products, Inc. | 64,570 | 1,878,987 | ||||||
Estee Lauder Cos., Inc. (The) (Class A) | 30,959 | 1,735,871 | ||||||
3,614,858 | ||||||||
Pharmaceuticals–2.3% | ||||||||
Abbott Laboratories | 38,050 | 1,877,387 | ||||||
Allergan, Inc. | 30,287 | 1,860,227 | ||||||
Bristol-Myers Squibb Co. | 71,983 | 1,877,317 | ||||||
Eli Lilly & Co. | 53,618 | 1,799,420 | ||||||
Forest Laboratories, Inc.(b) | 67,975 | 1,855,038 | ||||||
Johnson & Johnson | 31,357 | 1,787,976 | ||||||
King Pharmaceuticals, Inc.(b) | 227,979 | 1,985,697 | ||||||
Merck & Co., Inc. | 52,025 | 1,829,199 | ||||||
Mylan, Inc.(b) | 99,611 | 1,709,325 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Equally-Weighted S&P 500 Fund
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Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Pfizer, Inc.(c) | 122,008 | $ | 1,943,587 | |||||
Watson Pharmaceuticals, Inc.(b) | 42,166 | 1,816,090 | ||||||
20,341,263 | ||||||||
Photographic Products–0.1% | ||||||||
Eastman Kodak Co.(b) | 346,870 | 1,210,576 | ||||||
Property & Casualty Insurance–1.6% | ||||||||
ACE Ltd. (Switzerland) | 33,725 | 1,803,276 | ||||||
Allstate Corp. (The) | 60,764 | 1,677,086 | ||||||
Berkshire Hathaway, Inc. (Class B)(b) | 23,216 | 1,828,957 | ||||||
Chubb Corp. | 35,033 | 1,931,019 | ||||||
Cincinnati Financial Corp. | 65,597 | 1,750,128 | ||||||
Progressive Corp. (The) | 92,097 | 1,823,521 | ||||||
Travelers Cos., Inc. (The) | 36,138 | 1,770,039 | ||||||
XL Group PLC (Cayman Islands) | 103,154 | 1,847,488 | ||||||
14,431,514 | ||||||||
Publishing–0.8% | ||||||||
Gannett Co., Inc. | 111,456 | 1,347,503 | ||||||
McGraw-Hill Cos., Inc. (The) | 61,652 | 1,704,678 | ||||||
Meredith Corp. | 52,496 | 1,536,033 | ||||||
New York Times Co. (The) (Class A)(b) | 189,750 | 1,362,405 | ||||||
Washington Post Co. (The) (Class B) | 4,052 | 1,459,652 | ||||||
7,410,271 | ||||||||
Railroads–0.6% | ||||||||
CSX Corp. | 33,770 | 1,684,785 | ||||||
Norfolk Southern Corp. | 31,404 | 1,685,767 | ||||||
Union Pacific Corp. | 24,299 | 1,772,369 | ||||||
5,142,921 | ||||||||
Real Estate Services–0.2% | ||||||||
CB Richard Ellis Group, Inc. (Class A)(b) | 119,263 | 1,958,298 | ||||||
Regional Banks–2.0% | ||||||||
BB&T Corp. | 62,757 | 1,388,185 | ||||||
Fifth Third Bancorp | 136,653 | 1,510,016 | ||||||
First Horizon National Corp.(b) | 154,774 | 1,560,122 | ||||||
Huntington Bancshares, Inc. | 306,736 | 1,622,633 | ||||||
KeyCorp | 221,715 | 1,634,039 | ||||||
M&T Bank Corp. | 20,457 | 1,751,937 | ||||||
Marshall & Ilsley Corp. | 235,501 | 1,542,532 | ||||||
PNC Financial Services Group, Inc. | 29,559 | 1,506,327 | ||||||
Regions Financial Corp. | 259,546 | 1,668,881 | ||||||
SunTrust Banks, Inc. | 70,829 | 1,592,944 | ||||||
Zions BanCorp. | 77,386 | 1,426,224 | ||||||
17,203,840 | ||||||||
REIT–Diversified–0.2% | ||||||||
Vornado Realty Trust | 23,377 | 1,894,940 | ||||||
Research & Consulting Services–0.4% | ||||||||
Dun & Bradstreet Corp. | 25,340 | 1,669,906 | ||||||
Equifax, Inc. | 61,225 | 1,804,301 | ||||||
3,474,207 | ||||||||
Residential REIT’s–0.6% | ||||||||
Apartment Investment & Management Co. | 83,404 | 1,704,778 | ||||||
AvalonBay Communities, Inc. | 17,843 | 1,877,440 | ||||||
Equity Residential | 40,553 | 1,858,544 | ||||||
5,440,762 | ||||||||
Restaurants–0.8% | ||||||||
Darden Restaurants, Inc. | 41,721 | 1,721,408 | ||||||
McDonald’s Corp. | 26,555 | 1,940,108 | ||||||
Starbucks Corp. | 65,993 | 1,517,179 | ||||||
Yum! Brands, Inc. | 43,675 | 1,821,248 | ||||||
6,999,943 | ||||||||
Retail REIT’s–0.4% | ||||||||
Kimco Realty Corp. | 122,330 | 1,823,940 | ||||||
Simon Property Group, Inc. | 20,755 | 1,877,290 | ||||||
3,701,230 | ||||||||
Semiconductor Equipment–0.9% | ||||||||
Applied Materials, Inc. | 139,112 | 1,445,374 | ||||||
KLA-Tencor Corp. | 60,251 | 1,687,630 | ||||||
MEMC Electronic Materials, Inc.(b) | 157,801 | 1,623,772 | ||||||
Novellus Systems, Inc.(b) | 65,251 | 1,520,348 | ||||||
Teradyne, Inc.(b) | 157,267 | 1,412,258 | ||||||
7,689,382 | ||||||||
Semiconductors–2.3% | ||||||||
Advanced Micro Devices, Inc.(b) | 210,165 | 1,181,127 | ||||||
Altera Corp. | 71,484 | 1,763,510 | ||||||
Analog Devices, Inc. | 60,804 | 1,695,216 | ||||||
Broadcom Corp. (Class A) | 52,407 | 1,570,638 | ||||||
Intel Corp.(c) | 86,677 | 1,535,916 | ||||||
Linear Technology Corp. | 62,885 | 1,801,655 | ||||||
LSI Corp.(b) | 352,136 | 1,415,587 | ||||||
Microchip Technology, Inc. | 62,483 | 1,730,154 | ||||||
Micron Technology, Inc.(b) | 185,575 | 1,199,742 | ||||||
National Semiconductor Corp. | 125,985 | 1,588,671 | ||||||
Nvidia Corp.(b) | 150,874 | 1,407,654 | ||||||
Texas Instruments, Inc. | 72,917 | 1,679,279 | ||||||
Xilinx, Inc. | 69,244 | 1,672,243 | ||||||
20,241,392 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Equally-Weighted S&P 500 Fund
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Shares | Value | |||||||
Soft Drinks–0.9% | ||||||||
Coca-Cola Co. (The) | 35,475 | $ | 1,983,762 | |||||
Coca-Cola Enterprises, Inc. | 68,629 | 1,953,181 | ||||||
Dr Pepper Snapple Group, Inc. | 48,887 | 1,800,019 | ||||||
PepsiCo, Inc. | 28,959 | 1,858,589 | ||||||
7,595,551 | ||||||||
Specialized Consumer Services–0.2% | ||||||||
H&R Block, Inc. | 117,452 | 1,509,258 | ||||||
Specialized Finance–0.9% | ||||||||
CME Group, Inc. | 6,041 | 1,498,651 | ||||||
IntercontinentalExchange, Inc.(b) | 15,189 | 1,451,461 | ||||||
Moody’s Corp. | 87,950 | 1,859,263 | ||||||
NASDAQ OMX Group, Inc. (The)(b) | 96,805 | 1,733,778 | ||||||
NYSE Euronext | 62,189 | 1,725,123 | ||||||
8,268,276 | ||||||||
Specialized REIT’s–1.3% | ||||||||
HCP, Inc. | 56,716 | 1,997,538 | ||||||
Health Care REIT, Inc. | 42,828 | 1,967,518 | ||||||
Host Hotels & Resorts, Inc. | 119,648 | 1,570,978 | ||||||
Plum Creek Timber Co., Inc. | 49,752 | 1,714,951 | ||||||
Public Storage | 19,779 | 1,938,738 | ||||||
Ventas, Inc. | 37,458 | 1,892,004 | ||||||
11,081,727 | ||||||||
Specialty Chemicals–0.8% | ||||||||
Airgas, Inc. | 29,104 | 1,915,043 | ||||||
Ecolab, Inc. | 39,483 | 1,871,494 | ||||||
International Flavors & Fragrances, Inc. | 39,933 | 1,824,539 | ||||||
Sigma-Aldrich Corp. | 34,842 | 1,852,549 | ||||||
7,463,625 | ||||||||
Specialty Stores–0.7% | ||||||||
CarMax, Inc.(b) | 81,263 | 1,619,572 | ||||||
Office Depot, Inc.(b) | 358,254 | 1,221,646 | ||||||
Staples, Inc. | 84,429 | 1,500,303 | ||||||
Tiffany & Co. | 41,758 | 1,654,870 | ||||||
5,996,391 | ||||||||
Steel–1.0% | ||||||||
AK Steel Holding Corp. | 133,507 | 1,700,879 | ||||||
Allegheny Technologies, Inc. | 35,638 | 1,451,179 | ||||||
Cliffs Natural Resources, Inc. | 33,008 | 2,019,760 | ||||||
Nucor Corp. | 44,727 | 1,645,059 | ||||||
United States Steel Corp. | 42,749 | 1,817,260 | ||||||
8,634,137 | ||||||||
Systems Software–1.7% | ||||||||
BMC Software, Inc.(b) | 49,211 | 1,774,549 | ||||||
CA, Inc. | 92,280 | 1,661,963 | ||||||
McAfee, Inc.(b) | 56,371 | 2,652,256 | ||||||
Microsoft Corp.(c) | 70,186 | 1,647,967 | ||||||
Novell, Inc.(b) | 303,228 | 1,704,141 | ||||||
Oracle Corp. | 79,988 | 1,750,138 | ||||||
Red Hat, Inc.(b) | 58,137 | 2,008,633 | ||||||
Symantec Corp.(b) | 122,410 | 1,668,448 | ||||||
14,868,095 | ||||||||
Thrifts & Mortgage Finance–0.4% | ||||||||
Hudson City Bancorp, Inc. | 138,696 | 1,598,472 | ||||||
People’s United Financial, Inc. | 127,631 | 1,623,466 | ||||||
3,221,938 | ||||||||
Tires & Rubber–0.2% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 154,774 | 1,430,112 | ||||||
Tobacco–0.9% | ||||||||
Altria Group, Inc. | 92,695 | 2,068,952 | ||||||
Lorillard, Inc. | 24,746 | 1,880,944 | ||||||
Philip Morris International, Inc. | 40,420 | 2,079,205 | ||||||
Reynolds American, Inc. | 35,172 | 1,918,281 | ||||||
7,947,382 | ||||||||
Trading Companies & Distributors–0.4% | ||||||||
Fastenal Co. | 33,943 | 1,536,600 | ||||||
WW Grainger, Inc. | 17,141 | 1,813,346 | ||||||
3,349,946 | ||||||||
Trucking–0.2% | ||||||||
Ryder System, Inc. | 41,711 | 1,600,451 | ||||||
Wireless Telecommunication Services–0.6% | ||||||||
American Tower Corp. (Class A)(b) | 41,174 | 1,929,414 | ||||||
MetroPCS Communications, Inc.(b) | 203,704 | 1,821,114 | ||||||
Sprint Nextel Corp.(b) | 404,304 | 1,649,560 | ||||||
5,400,088 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $501,263,855) | 863,332,926 | |||||||
Money Market Funds–0.3% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,265,412 | 1,265,412 | ||||||
Premier Portfolio–Institutional Class(d) | 1,265,412 | 1,265,412 | ||||||
Total Money Market Funds (Cost $2,530,824) | 2,530,824 | |||||||
TOTAL INVESTMENTS–98.5% (Cost $503,794,679) | 865,863,750 | |||||||
OTHER ASSETS LESS LIABILITIES–1.5% | 12,966,044 | |||||||
NET ASSETS–100.0% | $ | 878,829,794 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Investment Abbreviation:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $501,263,855) | $ | 863,332,926 | ||
Investments in affiliated money market funds, at value and cost | 2,530,824 | |||
Total investments, at value (Cost $503,794,679) | 865,863,750 | |||
Receivable for: | ||||
Investments sold | 13,496,767 | |||
Fund shares sold | 521,654 | |||
Dividends and interest | 2,909,338 | |||
Variation margin | 17,240 | |||
Other assets | 48,380 | |||
Total assets | 882,857,129 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,699,418 | |||
Fund shares reacquired | 1,361,366 | |||
Accrued fees to affiliates | 618,011 | |||
Accrued other operating expenses | 273,341 | |||
Trustee deferred compensation and retirement plans | 75,199 | |||
Total liabilities | 4,027,335 | |||
Net assets applicable to shares outstanding | $ | 878,829,794 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 638,591,202 | ||
Undistributed net investment income | 12,316,840 | |||
Undistributed net realized gain (loss) | (133,846,609 | ) | ||
Unrealized appreciation | 361,768,361 | |||
$ | 878,829,794 | |||
Net Assets: | ||||
Class A | $ | 556,910,191 | ||
Class B | $ | 110,366,765 | ||
Class C | $ | 55,797,027 | ||
Class R | $ | 204,519 | ||
Class Y | $ | 155,551,292 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 22,048,729 | |||
Class B | 4,406,588 | |||
Class C | 2,297,409 | |||
Class R | 8,135 | |||
Class Y | 6,107,679 | |||
Class A: | ||||
Net asset value per share | $ | 25.26 | ||
Maximum offering price per share, | ||||
(Net asset value of $25.26 divided by 94.50%) | $ | 26.73 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 25.05 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 24.29 | ||
Class R: | ||||
Net asset value and offering price per share | $ | 25.14 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 25.47 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the two months ended August 31, 2010 and year ended June 30, 2010
Two months ended | Year ended | |||||||
August 31, 2010 | June 30, 2010 | |||||||
Investment income: | ||||||||
Dividends | $ | 3,832,728 | $ | 17,517,448 | ||||
Dividends from affiliated money market funds | 2,161 | 7,167 | ||||||
Total investment income | 3,834,889 | 17,524,615 | ||||||
Expenses: | ||||||||
Advisory fees | 187,051 | 1,160,602 | ||||||
Administrative services fees | 42,646 | 732,675 | ||||||
Custodian fees | 3,325 | 53,455 | ||||||
Distribution fees: | ||||||||
Class A | 245,033 | 1,447,735 | ||||||
Class B | 204,473 | 1,578,036 | ||||||
Class C | 99,275 | 607,434 | ||||||
Class R | 177 | 780 | ||||||
Transfer agent fees — A, B, C and Y | 256,576 | 1,461,104 | ||||||
Trustees’ and officers’ fees and benefits | 2,900 | 36,350 | ||||||
Reports to shareholder fees | 99,364 | — | ||||||
Other | 38,618 | 326,617 | ||||||
Total expenses | 1,179,438 | 7,404,788 | ||||||
Less: Fees waived | (1,073 | ) | (6,210 | ) | ||||
Net expenses | 1,178,365 | 7,398,578 | ||||||
Net investment income | 2,656,524 | 10,126,037 | ||||||
Realized and unrealized gain (loss) from: | ||||||||
Net realized gain (loss) from: | ||||||||
Investment securities | 2,531,575 | 69,477,978 | ||||||
Futures contracts | (278,760 | ) | 1,760,195 | |||||
2,252,815 | 71,238,173 | |||||||
Change in net unrealized appreciation (depreciation) of: | ||||||||
Investment securities | 13,486,531 | 121,796,309 | ||||||
Futures contracts | 432,539 | (840,332 | ) | |||||
13,919,070 | 120,955,977 | |||||||
Net realized and unrealized gain | 16,171,885 | 192,194,150 | ||||||
Net increase in net assets resulting from operations | $ | 18,828,409 | $ | 202,320,187 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the two months ended August 31, 2010 and the years ended June 30, 2010 and 2009
Two months ended | Year ended | Year ended | ||||||||||
August 31, 2010 | June 30, 2010 | June 30, 2009 | ||||||||||
Operations: | ||||||||||||
Net investment income | $ | 2,656,524 | $ | 10,126,037 | $ | 15,015,212 | ||||||
Net realized gain (loss) | 2,252,815 | 71,238,173 | (194,994,133 | ) | ||||||||
Change in net unrealized appreciation (depreciation) | 13,919,070 | 120,955,977 | (228,731,855 | ) | ||||||||
Net increase (decrease) in net assets resulting from operations | 18,828,409 | 202,320,187 | (408,710,776 | ) | ||||||||
Distributions to shareholders from net investment income: | ||||||||||||
Class A | — | (5,859,977 | ) | (9,686,685 | ) | |||||||
Class B | — | (1,053,529 | ) | (1,212,927 | ) | |||||||
Class C | — | (469,837 | ) | (457,070 | ) | |||||||
Class R | — | (1,726 | ) | (1,244 | ) | |||||||
Class Y | — | (1,887,353 | ) | (4,307,220 | ) | |||||||
Total Distributions from net investment income | — | (9,272,422 | ) | (15,665,146 | ) | |||||||
Distributions to shareholders from net realized gains: | ||||||||||||
Class A | — | — | (80,882,027 | ) | ||||||||
Class B | — | — | (31,786,758 | ) | ||||||||
Class C | — | — | (8,825,968 | ) | ||||||||
Class R | — | — | (11,021 | ) | ||||||||
Class Y | — | — | (30,237,030 | ) | ||||||||
Total Distributions from net realized gains | — | — | (151,742,804 | ) | ||||||||
Net increase (decrease) in net assets resulting from share transactions | (19,801,062 | ) | (155,254,964 | ) | (173,859,398 | ) | ||||||
Net increase (decrease) in net assets | (972,653 | ) | 37,792,801 | (749,978,124 | ) | |||||||
Net Assets: | ||||||||||||
Beginning of period | 879,802,447 | 842,009,646 | 1,591,987,770 | |||||||||
End of period (Includes undistributed net investment income of $12,316,840, $9,670,755 and $9,344,620, respectively) | $ | 878,829,794 | $ | 879,802,447 | $ | 842,009,646 | ||||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Equally-Weighted S&P 500 Fund (the “Fund”) is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from June 30 to August 31.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Equally-Weighted S&P 500 Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A and Class W shares received Class A shares of the Fund; holders of the Acquired Fund’s Class B, Class C and Class R shares received the corresponding class of shares of the Fund and holders of the Acquired Fund’s Class I shares received Class Y shares of the Fund. Information for the Acquired Fund’s — Class W and Class I shares prior to the Reorganization is included with Class A and Class Y shares, respectively, throughout this report.
The Fund’s investment objective is to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
The Fund currently consists of five different classes of shares: Class A, Class B, Class C, Class R and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”).
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Class B shares and Class C shares are sold with a CDSC. Class R and Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the |
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laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | ||
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
J. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
Prior to the Reorganization, the Acquired Fund paid at advisory fee of $1,067,650 to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
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The Adviser has contractually agreed, through June 30, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding certain items discussed below) of Class A, Class B, Class C, Class R and Class Y shares to 0.75%, 1.50%, 1.50%, 1.00% and 0.50% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the fiscal year under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the period July 1, 2010 to August 31, 2010, the Adviser waived advisory fees of $1,073. For the year ended June 30, 2010, MSIA waived advisory fees of $6,210.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, the Acquired Fund paid an administration fee of $711,767 to Morgan Stanley Services Company, Inc. For the period July 1, 2010 to August 31, 2010 and the year ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as administrative services fees.
Also, the Trust has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $1,423,943 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer Agent. For the period July 1, 2010 to August 31, 2010 and the year ended June 30, 2010, the expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”), an affiliate of the Adviser. The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will reimburse IDI for distribution related expenses that IDI incurs up to a maximum of the following annual rates; (1) Class A — up to 0.25% of the average daily net assets of Class A shares; (2) Class B — up to 1.00% of the average daily net assets of Class B shares; (3) Class C — up to 1.00% of the average daily net assets of Class C shares and (4) Class R — up to 0.50% of the average daily net assets of Class R shares .
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by IDI, but not yet reimbursed to IDI may be recovered through the payment of future distribution fees from the Fund pursuant to the plan and contingent deferred sales charges paid by investors upon redemption of Class B shares.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Morgan Stanley Distributors Inc. (“MSDI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $3,359,427 to MSDI.
For the period July 1, 2010 to August 31, 2010 and the year ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period July 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $1,924 in front-end sales commissions from the sale of Class A shares and $1,039, $12,502 and $706 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period June 1, 2010 to June 30, 2010, IDI advised the Fund that IDI retained $1,217 in front-end sales commissions from the sale of Class A shares and $0, $7,613 and $0 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period July 1, 2009 to May 31, 2010, MSDI retained $125,669 in front-end sales commissions from the sale of Class A shares and $19,413, $149,206 and $4,799 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs |
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reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the period July 1, 2010 to August 31, 2010, there were no significant transfers between Level 1 and Level 2.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 865,863,750 | $ | — | $ | — | $ | 865,863,750 | ||||||||
Futures* | (300,710 | ) | — | — | (300,710 | ) | ||||||||||
Total Investments | $ | 865,563,040 | $ | — | $ | — | $ | 865,563,040 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | — | $ | (300,710 | ) | ||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the two months ended August 31, 2010 and the year ended June 30, 2010, respectively.
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Two months ended | Year ended | |||||||
August 31, 2010 | June 30, 2010 | |||||||
Futures* | Futures* | |||||||
Realized Gain (Loss) | ||||||||
Equity risk | $ | (278,760 | ) | $ | 1,760,195 | |||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Equity risk | 432,539 | (840,332 | ) | |||||
Total | $ | 153,779 | $ | 919,863 | ||||
* | The average value of futures outstanding for the two months ended August 31, 2010 and year ended June 30, 2010 were $11,558,970 and $7,468,474, respectively. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
S&P 500 E-Mini | 330 | September-2010/Long | $ | 17,296,950 | $ | (300,710 | ) | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
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NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the two months ended August 31, 2010 and the Years Ended June 30, 2010 and 2009:
August 31, | June 30, | |||||||||||
2010 | 2010 | 2009 | ||||||||||
Ordinary income | $ | — | $ | 9,272,422 | $ | 15,850,578 | ||||||
Long-term capital gain | — | — | 151,557,372 | |||||||||
Total distributions | $ | — | $ | 9,272,422 | $ | 167,407,950 | ||||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 12,234,015 | ||
Net unrealized appreciation — investments | 320,762,474 | |||
Temporary book/tax differences | (75,199 | ) | ||
Capital loss carryforward | (92,682,698 | ) | ||
Shares of beneficial interest | 638,591,202 | |||
Total net assets | $ | 878,829,794 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $2,248,161 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2016 | $ | 22,990,899 | ||
August 31, 2017 | 69,691,799 | |||
Total capital loss carryforward | $ | 92,682,698 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the two months ended August 31, 2010 was $3,713,112 and $27,147,141, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 339,816,871 | ||
Aggregate unrealized (depreciation) of investment securities | (19,054,397 | ) | ||
Net unrealized appreciation of investment securities | $ | 320,762,474 | ||
Cost of investments for tax purposes is $545,101,276. |
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NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of sales adjustments on real estate investment trusts, on August 31, 2010, undistributed net investment income was decreased by $10,439 and undistributed net realized gain (loss) was increased by $10,439. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||||||||||
Two months ended | Years ended June 30, | |||||||||||||||||||||||
August 31, 2010(a) | 2010 | 2009 | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Sold | 169,578 | $ | 4,450,136 | 2,724,971 | $ | 69,929,082 | 3,346,719 | $ | 70,520,141 | |||||||||||||||
Conversion from Class B | 226,963 | 5,965,412 | 129,389 | 3,510,993 | 286,924 | 6,105,494 | ||||||||||||||||||
Reinvestment of dividends and distributions | — | — | 224,579 | 5,695,319 | 5,234,182 | 88,562,343 | ||||||||||||||||||
Redeemed | (686,526 | ) | (17,839,000 | ) | (4,918,358 | ) | (123,914,889 | ) | (8,642,625 | ) | (182,921,358 | ) | ||||||||||||
Net increase (decrease) — Class A | (289,985 | ) | (7,423,452 | ) | (1,839,419 | ) | (44,779,495 | ) | 225,200 | (17,733,380 | ) | |||||||||||||
Class B | ||||||||||||||||||||||||
Sold | 12,287 | 319,874 | 175,476 | 4,444,539 | 384,883 | 8,289,012 | ||||||||||||||||||
Conversion to Class A | (228,827 | ) | (5,965,412 | ) | (130,102 | ) | (3,510,993 | ) | (288,462 | ) | (6,105,494 | ) | ||||||||||||
Reinvestment of dividends and distributions | — | — | 40,171 | 1,015,527 | 1,888,263 | 31,987,183 | ||||||||||||||||||
Redeemed | (203,247 | ) | (5,282,607 | ) | (2,996,031 | ) | (75,680,661 | ) | (4,912,016 | ) | (106,937,915 | ) | ||||||||||||
Net increase (decrease) — Class B | (419,787 | ) | (10,928,145 | ) | (2,910,486 | ) | (73,731,588 | ) | (2,927,332 | ) | (72,767,214 | ) | ||||||||||||
Class C | ||||||||||||||||||||||||
Sold | 17,659 | 446,294 | 186,847 | 4,577,184 | 279,958 | 5,793,644 | ||||||||||||||||||
Reinvestment of dividends and distributions | — | — | 18,629 | 456,604 | 555,627 | 9,134,509 | ||||||||||||||||||
Redeemed | (90,618 | ) | (2,278,711 | ) | (479,138 | ) | (11,635,394 | ) | (934,237 | ) | (20,232,820 | ) | ||||||||||||
Net increase (decrease) — Class C | (72,959 | ) | (1,832,417 | ) | (273,662 | ) | (6,601,606 | ) | (98,652 | ) | (5,304,667 | ) | ||||||||||||
Class R | ||||||||||||||||||||||||
Sold | 384 | 9,924 | 5,381 | 137,925 | 10 | 200 | ||||||||||||||||||
Reinvestment of dividends and distributions | — | — | 31 | 792 | 725 | 12,265 | ||||||||||||||||||
Redeemed | (685 | ) | (17,703 | ) | (630 | ) | (17,386 | ) | — | — | ||||||||||||||
Net increase (decrease) — Class R | (301 | ) | (7,779 | ) | 4,782 | 121,331 | 735 | 12,465 | ||||||||||||||||
Class Y | ||||||||||||||||||||||||
Sold | 249,691 | 6,529,012 | 549,168 | 13,969,777 | 670,632 | 15,381,741 | ||||||||||||||||||
Reinvestment of dividends and distributions | — | — | 73,263 | 1,869,683 | 2,025,936 | 34,461,165 | ||||||||||||||||||
Redeemed | (233,702 | ) | (6,138,281 | ) | (1,835,049 | ) | (46,103,066 | ) | (5,843,447 | ) | (127,909,508 | ) | ||||||||||||
Net increase (decrease) — Class Y | 15,989 | 390,731 | (1,212,618 | ) | (30,263,606 | ) | (3,146,879 | ) | (78,066,602 | ) | ||||||||||||||
Net increase in (decrease) in share activity | (767,043 | ) | $ | (19,801,062 | ) | (6,231,403 | ) | $ | (155,254,964 | ) | (5,946,928 | ) | $ | (173,859,398 | ) | |||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 80% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Class A | ||||||||||||||||||||||||
Two months ended | Year ended June 30, | |||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 24.74 | $ | 20.14 | $ | 33.39 | $ | 45.39 | $ | 40.04 | $ | 37.58 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.08 | 0.30 | 0.37 | 0.48 | 0.45 | 0.39 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.44 | 4.56 | (9.39 | ) | (7.81 | ) | 7.54 | 3.79 | ||||||||||||||||
Total income (loss) from investment operations | 0.52 | 4.86 | (9.02 | ) | (7.33 | ) | 7.99 | 4.18 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.26 | ) | (0.46 | ) | (0.48 | ) | (0.40 | ) | (0.36 | ) | |||||||||||||
Net realized gain | — | — | (3.77 | ) | (4.19 | ) | (2.24 | ) | (1.36 | ) | ||||||||||||||
Total dividends and distributions | — | (0.26 | ) | (4.23 | ) | (4.67 | ) | (2.64 | ) | (1.72 | ) | |||||||||||||
Net asset value, end of period | $ | 25.26 | $ | 24.74 | $ | 20.14 | $ | 33.39 | $ | 45.39 | $ | 40.04 | ||||||||||||
Total return(b) | 2.10 | % | 24.08 | % | (24.61 | )% | (17.31 | )% | 20.44 | % | 11.22 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 556,910 | $ | 552,673 | $ | 486,937 | $ | 799,622 | $ | 1,070,820 | $ | 850,678 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 0.65 | %(c) | 0.64 | % | 0.75 | %(d) | 0.62 | %(d) | 0.62 | %(d) | 0.63 | % | ||||||||||||
Net investment income | 1.81 | %(c) | 1.17 | % | 1.62 | %(d) | 1.22 | %(d) | 1.05 | %(d) | 0.98 | % | ||||||||||||
Rebate from affiliates | — | — | 0.00 | %(e) | 0.00 | %(e) | �� | 0.00 | %(e) | — | ||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 0 | %(g) | 24 | % | 39 | % | 25 | % | 14 | % | 16 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $577,013. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(g) | Amount is less than 0.5%. |
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NOTE 11—Financial Highlights—(continued)
Class B | ||||||||||||||||||||||||
Two months ended | Year ended June 30, | |||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 24.56 | $ | 20.08 | $ | 33.02 | $ | 44.85 | $ | 39.57 | $ | 37.10 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.05 | 0.10 | 0.20 | 0.18 | 0.12 | 0.09 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.44 | 4.54 | (9.22 | ) | (7.74 | ) | 7.45 | 3.74 | ||||||||||||||||
Total income (loss) from investment operations | 0.49 | 4.64 | (9.02 | ) | (7.56 | ) | 7.57 | 3.83 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.16 | ) | (0.15 | ) | (0.08 | ) | (0.05 | ) | 0.00 | ||||||||||||||
Net realized gain | — | — | (3.77 | ) | (4.19 | ) | (2.24 | ) | (1.36 | ) | ||||||||||||||
Total dividends and distributions | — | (0.16 | ) | (3.92 | ) | (4.27 | ) | (2.29 | ) | (1.36 | ) | |||||||||||||
Net asset value, end of period | $ | 25.05 | $ | 24.56 | $ | 20.08 | $ | 33.02 | $ | 44.85 | $ | 39.57 | ||||||||||||
Total return(b) | 2.00 | % | 23.09 | % | (25.14 | )% | (17.96 | )% | 19.54 | % | 10.38 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 110,367 | $ | 118,559 | $ | 155,328 | $ | 352,174 | $ | 630,489 | $ | 674,371 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 1.40 | %(c) | 1.39 | % | 1.50 | %(d) | 1.37 | %(d) | 1.38 | %(d) | 1.38 | % | ||||||||||||
Net investment income | 1.06 | %(c) | 0.42 | % | 0.87 | %(d) | 0.47 | %(d) | 0.29 | %(d) | 0.23 | % | ||||||||||||
Rebate from affiliates | — | — | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | — | |||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 0 | %(g) | 24 | % | 39 | % | 25 | % | 14 | % | 16 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $120,375. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(g) | Amount is less than 0.5% |
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NOTE 11—Financial Highlights—(continued)
Class C | ||||||||||||||||||||||||
Two months ended | Year ended June 30, | |||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 23.82 | $ | 19.49 | $ | 32.33 | $ | 44.08 | $ | 38.97 | $ | 36.60 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.04 | 0.10 | 0.19 | 0.19 | 0.14 | 0.11 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.43 | 4.42 | (9.06 | ) | (7.58 | ) | 7.33 | 3.69 | ||||||||||||||||
Total income (loss) from investment operations | 0.47 | 4.52 | (8.87 | ) | (7.39 | ) | 7.47 | 3.80 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.19 | ) | (0.20 | ) | (0.17 | ) | (0.12 | ) | (0.07 | ) | |||||||||||||
Net realized gain | — | — | (3.77 | ) | (4.19 | ) | (2.24 | ) | (1.36 | ) | ||||||||||||||
Total dividends and distributions | — | (0.19 | ) | (3.97 | ) | (4.36 | ) | (2.36 | ) | (1.43 | ) | |||||||||||||
Net asset value, end of period | $ | 24.29 | $ | 23.82 | $ | 19.49 | $ | 32.33 | $ | 44.08 | $ | 38.97 | ||||||||||||
Total return(b) | 1.97 | % | 23.15 | % | (25.17 | )% | (17.89 | )% | 19.53 | % | 10.44 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 55,797 | $ | 56,462 | $ | 51,534 | $ | 88,658 | $ | 124,080 | $ | 101,809 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 1.40 | %(c) | 1.39 | % | 1.50 | %(d) | 1.35 | %(d) | 1.34 | %(d) | 1.33 | % | ||||||||||||
Net investment income | 1.06 | %(c) | 0.42 | % | 0.87 | %(d) | 0.49 | %(d) | 0.33 | %(d) | 0.28 | % | ||||||||||||
Rebate from affiliates | — | — | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | — | |||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 0 | %(g) | 24 | % | 39 | % | 25 | % | 14 | % | 16 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $58,444. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(g) | Amount is less than 0.5%. |
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NOTE 11—Financial Highlights—(continued)
Class R | ||||||||||||||||
Two months ended | Year ended June 30, | |||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008(a) | |||||||||||||
Selected per share data: | ||||||||||||||||
Net asset value, beginning of period | $ | 24.63 | $ | 20.10 | $ | 33.36 | $ | 34.26 | ||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income(b) | 0.07 | 0.23 | 0.30 | 0.09 | ||||||||||||
Net realized and unrealized gain (loss) | 0.44 | 4.56 | (9.35 | ) | (0.99 | ) | ||||||||||
Total income (loss) from investment operations | 0.51 | 4.79 | (9.05 | ) | (0.90 | ) | ||||||||||
Less dividends and distributions from: | ||||||||||||||||
Net investment income | — | (0.26 | ) | (0.44 | ) | — | ||||||||||
Net realized gain | — | — | (3.77 | ) | — | |||||||||||
Total dividends and distributions | — | (0.26 | ) | (4.21 | ) | — | ||||||||||
Net asset value, end of period | $ | 25.14 | $ | 24.63 | $ | 20.10 | $ | 33.36 | ||||||||
Total return(c) | 2.07 | % | 23.78 | % | (24.78 | )% | (2.63 | )% | ||||||||
Net assets, end of period, (000’s) | $ | 205 | $ | 208 | $ | 73 | $ | 97 | ||||||||
Ratios to average net assets: | ||||||||||||||||
Total expenses | 0.90 | %(d) | 0.89 | % | 1.00 | %(e) | 0.86 | %(e)(f) | ||||||||
Net investment income | 1.56 | %(d) | 0.92 | % | 1.37 | %(e) | 0.98 | %(e)(f) | ||||||||
Rebate from affiliates | — | — | 0.00 | %(g) | 0.00 | %(f)(g) | ||||||||||
Supplemental data: | ||||||||||||||||
Portfolio turnover(h) | 0 | %(i) | 24 | % | 39 | % | 25 | % | ||||||||
(a) | Commencement date of March 31, 2008 for Class R shares. | |
(b) | Calculated using average shares outstanding. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $208. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(f) | Annualized. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(i) | Amount is less than 0.5% |
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NOTE 11—Financial Highlights—(continued)
Class Y | ||||||||||||||||||||||||
Two months ended | Year ended June 30, | |||||||||||||||||||||||
August 31, 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 24.94 | $ | 20.27 | $ | 33.62 | $ | 45.68 | $ | 40.28 | $ | 37.77 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.09 | 0.36 | 0.43 | 0.59 | 0.56 | 0.49 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.44 | 4.59 | (9.46 | ) | (7.87 | ) | 7.58 | 3.81 | ||||||||||||||||
Total income (loss) from investment operations | 0.53 | 4.95 | (9.03 | ) | (7.28 | ) | 8.14 | 4.30 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.28 | ) | (0.55 | ) | (0.59 | ) | (0.50 | ) | (0.43 | ) | |||||||||||||
Net realized gain | — | — | (3.77 | ) | (4.19 | ) | (2.24 | ) | (1.36 | ) | ||||||||||||||
Total dividends and distributions | — | (0.28 | ) | (4.32 | ) | (4.78 | ) | (2.74 | ) | (1.79 | ) | |||||||||||||
Net asset value, end of period | $ | 25.47 | $ | 24.94 | $ | 20.27 | $ | 33.62 | $ | 45.68 | $ | 40.28 | ||||||||||||
Total return(b) | 2.12 | % | 24.39 | % | (24.41 | )% | (17.11 | )% | 20.72 | % | 11.49 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 155,551 | $ | 151,901 | $ | 148,051 | $ | 351,338 | $ | 537,295 | $ | 508,494 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 0.40 | %(c) | 0.39 | % | 0.50 | %(d) | 0.37 | %(d) | 0.38 | %(d) | 0.38 | % | ||||||||||||
Net investment income | 2.06 | %(c) | 1.42 | % | 1.87 | %(d) | 1.47 | %(d) | 1.29 | %(d) | 1.23 | % | ||||||||||||
Rebate from affiliates | — | — | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | — | |||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 0 | %(g) | 24 | % | 39 | % | 25 | % | 14 | % | 16 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Not annualized for periods less than one year, if applicable. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $161,615. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(g) | Amount is less than 0.5%. |
NOTE 12—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Equally-Weighted S&P 500 Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Equally-Weighted S&P 500 Fund (one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period ended August 31, 2010 and the year ended June 30, 2010, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended June 30, 2009 and the financial highlights of the Fund for the periods ended June 30, 2009 and prior were audited by other independent auditors whose report dated August 24, 2009 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 974.20 | $ | 2.94 | $ | 1,022.23 | $ | 3.01 | 0.59 | % | ||||||||||||||||||
B | 1,000.00 | 970.60 | 6.66 | 1,018.45 | 6.82 | 1.34 | ||||||||||||||||||||||||
C | 1,000.00 | 970.40 | 6.66 | 1,018.45 | 6.82 | 1.34 | ||||||||||||||||||||||||
R | 1,000.00 | 973.30 | 4.18 | 1,020.97 | 4.28 | 0.84 | ||||||||||||||||||||||||
Y | 1,000.00 | 975.50 | 1.69 | 1,023.49 | 1.73 | 0.34 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
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Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. And Its Affiliates |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Equally-Weighted S&P 500 Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed the information provided differently than another Trustee.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco
35 Invesco Equally-Weighted S&P 500 Fund
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Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
MS-EWSP-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Invesco Fundamental Value Fund
Annual Report to Shareholders August 31, 2010
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
11 | Financial Statements | |
13 | Notes to Financial Statements | |
19 | Financial Highlights | |
23 | Auditor's Report | |
24 | Fund Expenses | |
25 | Approval of Investment Advisory and Sub-Advisory Agreements | |
27 | Tax Information | |
28 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this
report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our
June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen
Investments, I’m glad you’re part of the Invesco family.
report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our
June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen
Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Fundamental Value Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Fundamental Value Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
For the 11 months ended August 31, 2010, Invesco Fundamental Value Fund underperformed the Russell 1000 Value Index, the Fund’s benchmark. As the Fund uses a bottom-up stock selection approach, stock selection in various sectors was the primary reason the Fund underperformed its benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 9/30/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -3.52 | % | ||
Class B Shares | -3.70 | |||
Class C Shares | -4.20 | |||
Class Y Shares | -3.30 | |||
Russell 1000 Value Index▼ (Broad Market/Style-Specific Index) | 1.06 | |||
Lipper Large-Cap Value Funds Index▼ (Peer Group Index) | -0.65 | |||
▼ | Lipper Inc. |
How we invest
We call our investment philosophy value with a catalyst. We believe that undervalued companies which are experiencing positive changes (i.e., catalysts) have the potential to generate long-term stock price growth for shareholders. We generally seek to identify companies that are out of favor with investors, under-earning relative to their potential and attractively valued. For these companies, we attempt to identify catalysts that may improve the financial results and/or correct the under-valuation. Examples of catalysts typically include improved operational efficiency, changing industry dynamics and/or a change in management.
We initially identify potential investments through a series of quantitative screens including, but not limited to, return on capital and enterprise value to sales metrics. We then conduct fundamental research on the most attractive opportunities. The research process includes a thorough review of a company’s
financial statements, an evaluation of its competitive position and stability, and meetings with its executives. During the research process, we also value the company under various scenarios to determine if the investment is an attractive opportunity relative to its risks. This is also where we typically identify the positive catalyst, a prerequisite for potential investment. Finally, we generally set a price target for a stock based on normalized earnings and historical valuation multiples.
In short, our objective is to exploit negative sentiment toward a company’s stock by analyzing the company’s operations in the context of a cyclical environment and identifying one or more catalysts that may improve the company’s financial performance. Improved financial performance, in turn, has the potential to drive the company’s stock price higher.
We typically sell an investment when it reaches our estimate of fair value or when we identify a more attractive investment opportunity.
Market conditions and your Fund
At the beginning of the 11-month period covered by this report, riskier assets were outperforming securities considered safe havens, like U.S. Treasuries. This continued through the middle of April 2010. However, renewed credit problems in Europe and the market correction that occurred in May, June and into August, created a more uncertain environment which prompted many investors to favor safety over risk. Although recent market volatility created challenges, it also created some investment opportunities, as companies with positive fundamentals became more attractively valued. Also, despite the market finishing lower at the end of the reporting period, there were also a number of positives, including improved market liquidity, lean corporate infrastructures and merger and acquisition activity.
An overweight allocation to consumer discretionary was one of the largest contributors to performance of the Fund, as media stocks performed well within this sector due to an increase in advertising revenue over the reporting period.
Stock selection in the energy sector was the largest relative detractor during the reporting period. The Fund had most of its energy sector exposure in exploration and production companies. We had exposure to British Petroleum and Anadarko Petroleum. Each company was negatively affected by the oil spill in the Gulf of Mexico. During the period we eliminated our position in British Petroleum and significantly reduced our exposure to Anadarko Petroleum.
Stock selection in the financials sector also was a detractor from Fund performance. In general, we focused on what we believed were lower risk financial companies with stronger balance sheets and less credit risk given the systemic risk in most financial stocks. However, the
Portfolio Composition
By sector
Financials | 19.1 | % | ||
Health Care | 16.4 | |||
Consumer Discretionary | 12.5 | |||
Energy | 11.8 | |||
Information Technology | 10.8 | |||
Industrials | 10.1 | |||
Consumer Staples | 8.5 | |||
Utilities | 6.5 | |||
Telecommunication Services | 2.3 | |||
Materials | 0.7 | |||
Money Market Funds | ||||
Plus Other Assets Less Liabilities | 1.3 |
Top 10 Equity Holdings*
1. | JP Morgan Chase & Co. | 4.6 | % | |||||
2. | Marsh & McLennan Cos., Inc. | 3.6 | ||||||
3. | General Electric Co. | 3.2 | ||||||
4. | Viacom, Inc. | 3.1 | ||||||
5. | Time Warner Cable, Inc. | 3.1 | ||||||
6. | Occidental Petroleum Corp. | 2.8 | ||||||
7. | Kraft Foods, Inc. | 2.6 | ||||||
8. | American Electric Power Co., Inc. | 2.5 | ||||||
9. | eBay, Inc. | 2.4 | ||||||
10. | Time Warner, Inc. | 2.3 |
Total Net Assets | $38.9 million | |||
Total Number of Holdings* | 66 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Fundamental Value Fund |
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Fund had no exposure to REITs (real estate investment trusts), which performed well throughout the period. The Fund’s lack of exposure to REITs was based on our concern that valuations were high and that the commercial real estate market had weakened.
Finally, technology stocks adversely affected relative performance. The Fund was overweight this sector versus the Russell 1000 Value Index and was adversely affected by exposure to stocks in the hardware and equipment industry. Notably detracting from Fund performance was Hewlett-Packard, as the stock sold off significantly on the announcement that the CEO was leaving.
Equity markets experienced a strong recovery during the period covered by this report. We believe that market volatility and the market correction that began in the second quarter of 2010 have created opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals could be reflected in those companies’ stock prices.
As always, we would like to caution investors against making investment decisions based on short-term performance. We recommend that you consult a financial adviser to discuss your individual financial program.
Thank you for your investment in Invesco Fundamental Value Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Thomas Bastian
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Fundamental Value Fund. He joined Invesco in 2010. Mr. Bastian earned a B.A. in accounting from St. John’s University and an M.B.A. in finance from the University of Michigan. He is a member of the CFA Institute and the Houston Society of Financial Analysts.
Mark Laskin
Chartered Financial Analyst, portfolio manager, is manager of Invesco Fundamental Value Fund. He joined Invesco in 2010. Mr. Laskin earned a B.A. in history from Swarthmore College and an M.B.A. and M.A. from the Wharton School and Lauder Institute, respectively, of the University of Pennsylvania.
Mary Jayne Maly
Chartered Financial Analyst, portfolio manager, is manager of Invesco Fundamental Value Fund. She joined Invesco in 2010. Ms. Maly earned a B.A. from the University of Pittsburgh and an M.B.A. from the American Graduate School of International Management. She is a member of the Houston Society of Financial Analysts.
Sergio Marcheli
Portfolio manager, is manager of Invesco Fundamental Value Fund. He joined Invesco in 2010. Mr. Marcheli earned a B.B.A. from the University of Houston and an M.B.A. from the University of St. Thomas.
James Roeder
Chartered Financial Analyst, portfolio manager, is manager of Invesco Fundamental Value Fund. He joined Invesco in 2010. Mr. Roeder earned a B.S. in accounting from Clemson University and an M.B.A. in economics and finance from the University of Chicago Graduate School of Business. He is a member of the CFA Institute and the Houston Society of Financial Analysts. He is also a Certified Public Accountant.
5 | Invesco Fundamental Value Fund |
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Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Classes since Inception
Fund data from 10/29/02, index data from 10/31/02
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges.
Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating
changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 | Invesco Fundamental Value Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||||||
Inception (10/29/02) | 4.96 | % | ||||||
5 | Years | -1.39 | ||||||
1 | Year | -3.52 | ||||||
Class B Shares | ||||||||
Inception (10/29/02) | 5.48 | % | ||||||
5 | Years | -0.47 | ||||||
1 | Year | -2.96 | ||||||
Class C Shares | ||||||||
Inception (10/29/02) | 4.95 | % | ||||||
5 | Years | -1.01 | ||||||
1 | Year | 0.34 | ||||||
Class Y Shares | ||||||||
Inception (10/29/02) | 5.97 | % | ||||||
5 | Years | -0.05 | ||||||
1 | Year | 2.31 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco Fundamental Value Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco Fundamental Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||||
Inception (10/29/02) | 4.94 | % | ||||||
5 | Years | -0.90 | ||||||
1 | Year | 8.57 | ||||||
Class B Shares | ||||||||
Inception (10/29/02) | 5.48 | % | ||||||
5 | Years | 0.03 | ||||||
1 | Year | 9.98 | ||||||
Class C Shares | ||||||||
Inception (10/29/02) | 4.94 | % | ||||||
5 | Years | -0.52 | ||||||
1 | Year | 13.00 | ||||||
Class Y Shares | ||||||||
Inception (10/29/02) | 5.97 | % | ||||||
5 | Years | 0.47 | ||||||
1 | Year | 15.33 |
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, and Class Y shares was 1.65%, 1.57%, 2.40% and 1.40%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, and Class Y shares was 1.70%, 1.62%, 2.45% and 1.45%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Fundamental Value Fund |
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Invesco Fundamental Value Fund’s investment objective is to provide total return.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | In general, stock and other equity security values fluctuate, and sometimes widely fluctuate, in response to activities specific to the company as well as general market, economic and political conditions. Investments in convertible securities subject the Fund to the risks associated with both fixed income securities, including credit risk and interest rate risk, and common stocks. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. | |
n | All fixed income securities are subject to two types of risk: credit risk and interest rate risk. When the general level of interest rates goes up, the prices of most fixed income securities go down. When the general level of interest rates goes down, the prices of most fixed income securities go up. | |
n | Investing in the securities of foreign issuers, particularly those located in emerging market or developing countries entails the risk that news and events unique to a country or region |
will affect those markets and their issuers. In addition, the Fund’s investments in foreign issuers generally will be denominated in foreign currencies. As a result, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Fund’s investments. | ||
n | Lower rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions. | |
n | REITs (real estate investment trusts) are susceptible to risk associated with the ownership of real estate and the real estate industry in general. In addition, REITs depend on specialized management skills, may not be diversified, may have less trading volume and may be subject to more abrupt or erratic price movements than the overall securities market. Investments in REITs may involve duplication of management fees and certain other expenses. | |
n | Value stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. Value stocks can continue to be undervalued for long periods of time and may not ever realize their full value. |
About indexes used in this report
n | The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |
n | The Lipper Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value funds tracked by Lipper. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols | ||||
Class A Shares | FVFAX | |||
Class B Shares | FVFBX | |||
Class C Shares | FVFCX | |||
Class Y Shares | FVFDX |
8 | Invesco Fundamental Value Fund |
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Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks & Other Equity Interests–88.2% | ||||||||
Asset Management & Custody Banks–0.7% | ||||||||
State Street Corp. | 7,855 | $ | 275,553 | |||||
Cable & Satellite–3.1% | ||||||||
Time Warner Cable, Inc. | 23,471 | 1,211,338 | ||||||
Communications Equipment–2.1% | ||||||||
Cisco Systems, Inc.(b) | 41,126 | 824,576 | ||||||
Computer Hardware–3.0% | ||||||||
Dell, Inc.(b) | 31,550 | 371,344 | ||||||
Hewlett-Packard Co. | 20,478 | 787,993 | ||||||
1,159,337 | ||||||||
Consumer Electronics–1.4% | ||||||||
Sony Corp. (ADR) (Japan) | 19,895 | 556,861 | ||||||
Diversified Banks–1.1% | ||||||||
Wells Fargo & Co. | 17,579 | 413,985 | ||||||
Diversified Chemicals–0.8% | ||||||||
Dow Chemical Co. (The) | 12,624 | 307,647 | ||||||
Drug Retail–1.1% | ||||||||
Walgreen Co. | 16,472 | 442,767 | ||||||
Electric Utilities–4.4% | ||||||||
American Electric Power Co., Inc. | 27,953 | 989,816 | ||||||
Entergy Corp. | 4,663 | 367,631 | ||||||
FirstEnergy Corp. | 9,847 | 359,711 | ||||||
1,717,158 | ||||||||
Food Distributors–1.3% | ||||||||
Sysco Corp. | 17,860 | 490,971 | ||||||
Health Care Distributors–0.8% | ||||||||
Cardinal Health, Inc. | 10,848 | 325,006 | ||||||
Health Care Equipment–1.6% | ||||||||
Covidien PLC (Ireland) | 17,725 | 626,402 | ||||||
Home Improvement Retail–2.0% | ||||||||
Home Depot, Inc. | 28,481 | 792,057 | ||||||
Human Resource & Employment Services–0.8% | ||||||||
Manpower, Inc. | 7,574 | 321,895 | ||||||
Hypermarkets & Super Centers–2.2% | ||||||||
Wal-Mart Stores, Inc. | 17,393 | 872,085 | ||||||
Industrial Conglomerates–6.0% | ||||||||
General Electric Co. | 86,508 | 1,252,636 | ||||||
Siemens AG (ADR) (Germany) | 4,511 | 408,381 | ||||||
Tyco International Ltd. (Switzerland) | 18,422 | 686,772 | ||||||
2,347,789 | ||||||||
Industrial Machinery–1.6% | ||||||||
Dover Corp. | 14,026 | 627,804 | ||||||
Insurance Brokers–3.6% | ||||||||
Marsh & McLennan Cos., Inc. | 58,529 | 1,388,308 | ||||||
Integrated Oil & Gas–7.2% | ||||||||
Exxon Mobil Corp. | 9,164 | 542,142 | ||||||
Hess Corp. | 5,768 | 289,842 | ||||||
Occidental Petroleum Corp. | 14,990 | 1,095,469 | ||||||
Royal Dutch Shell PLC (ADR) (United Kingdom) | 16,512 | 875,962 | ||||||
2,803,415 | ||||||||
Internet Software & Services–2.4% | ||||||||
eBay, Inc.(b) | 39,630 | 921,001 | ||||||
Investment Banking & Brokerage–1.4% | ||||||||
Charles Schwab Corp. (The) | 43,601 | 556,349 | ||||||
Managed Health Care–1.2% | ||||||||
UnitedHealth Group, Inc. | 14,682 | 465,713 | ||||||
Movies & Entertainment–5.4% | ||||||||
Time Warner, Inc. | 30,180 | 904,796 | ||||||
Viacom, Inc. (Class B) | 38,640 | 1,214,069 | ||||||
2,118,865 | ||||||||
Office Services & Supplies–1.1% | ||||||||
Avery Dennison Corp. | 12,997 | 422,662 | ||||||
Oil & Gas Equipment & Services–1.3% | ||||||||
Schlumberger Ltd. (Netherlands Antilles) | 9,126 | 486,690 | ||||||
Oil & Gas Exploration & Production–3.0% | ||||||||
Anadarko Petroleum Corp. | 15,506 | 713,121 | ||||||
Devon Energy Corp. | 7,667 | 462,167 | ||||||
1,175,288 | ||||||||
Other Diversified Financial Services–7.5% | ||||||||
Bank of America Corp. | 58,071 | 722,984 | ||||||
Citigroup, Inc.(b) | 107,916 | 401,448 | ||||||
JPMorgan Chase & Co. | 49,109 | 1,785,603 | ||||||
2,910,035 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Fundamental Value Fund
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Shares | Value | |||||||
Packaged Foods & Meats–2.6% | ||||||||
Kraft Foods, Inc. (Class A) | 33,757 | $ | 1,011,022 | |||||
Personal Products–1.2% | ||||||||
Avon Products, Inc. | 16,489 | 479,830 | ||||||
Pharmaceuticals–7.9% | ||||||||
Abbott Laboratories | 6,882 | 339,558 | ||||||
Bayer AG (ADR) (Germany) | 9,688 | 592,872 | ||||||
Bristol-Myers Squibb Co. | 32,009 | 834,795 | ||||||
Merck & Co., Inc. | 9,887 | 347,627 | ||||||
Pfizer, Inc. | 23,284 | 370,914 | ||||||
Roche Holding AG (ADR) (Switzerland) | 16,946 | 576,565 | ||||||
3,062,331 | ||||||||
Property & Casualty Insurance–1.2% | ||||||||
Chubb Corp. | 8,308 | 457,937 | ||||||
Regional Banks–3.7% | ||||||||
BB&T Corp. | 10,567 | 233,742 | ||||||
Fifth Third Bancorp | 36,188 | 399,878 | ||||||
PNC Financial Services Group, Inc. | 15,666 | 798,339 | ||||||
1,431,959 | ||||||||
Semiconductors–1.2% | ||||||||
Intel Corp. | 25,247 | 447,377 | ||||||
Wireless Telecommunication Services–2.3% | ||||||||
Vodafone Group PLC (ADR) (United Kingdom) | 36,630 | 885,713 | ||||||
Total Common Stocks & Other Equity Interests (Cost $33,719,787) | 34,337,726 | |||||||
Principal | ||||||||
Amount | ||||||||
Convertible Bonds–7.4% | ||||||||
Advertising–0.4% | ||||||||
Interpublic Group of Cos., Inc., 4.25%, 03/15/23 | $ | 146,000 | 154,395 | |||||
Biotechnology–2.5% | ||||||||
Amgen, Inc., 0.375%, 02/01/13(c) | 500,000 | 498,750 | ||||||
Amgen, Inc., 0.375%, 02/01/13 | 500,000 | 498,750 | ||||||
997,500 | ||||||||
Communications Equipment–1.2% | ||||||||
JDS Uniphase Corp., 1.00%, 05/15/26(c) | 500,000 | 459,375 | ||||||
Computer Storage & Peripherals–0.7% | ||||||||
SanDisk Corp., 1.00%, 05/15/13 | 293,000 | 270,292 | ||||||
Construction & Farm Machinery & Heavy Trucks–0.1% | ||||||||
Navistar International Corp., 3.00%, 10/15/14 | 39,000 | 42,754 | ||||||
Health Care Services–0.7% | ||||||||
Omnicare, Inc., (Series OCR), 3.25%, 12/15/35 | 334,000 | 279,725 | ||||||
Life Sciences Tools & Services–1.1% | ||||||||
Life Technologies Corp., 1.50%, 02/15/24 | 400,000 | 442,000 | ||||||
Oil & Gas Equipment & Services–0.4% | ||||||||
Helix Energy Solutions Group, Inc., 3.25%, 12/15/25 | 163,000 | 149,145 | ||||||
Semiconductors–0.3% | ||||||||
Micron Technology, Inc., 1.875%, 06/01/14 | 122,000 | 105,683 | ||||||
Total Convertible Bonds (Cost $2,816,335) | 2,900,869 | |||||||
Shares | ||||||||
Convertible Preferred Stocks–3.1% | ||||||||
Electric Utilities–2.1% | ||||||||
CenterPoint Energy, Inc., 3.07%, Pfd. | 28,000 | 808,920 | ||||||
Health Care Facilities–0.5% | ||||||||
HealthSouth Corp., 6.50%, Pfd.(c) | 250 | 198,188 | ||||||
Office Services & Supplies–0.5% | ||||||||
Avery Dennison Corp., 7.88%, Pfd. | 5,325 | 205,012 | ||||||
Total Convertible Preferred Stocks (Cost $1,146,894) | 1,212,120 | |||||||
Money Market Funds–1.5% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 286,663 | 286,663 | ||||||
Premier Portfolio–Institutional Class(d) | 286,663 | 286,663 | ||||||
Total Money Market Funds (Cost $573,326) | 573,326 | |||||||
TOTAL INVESTMENTS (Cost $38,256,342)–100.2% | 39,024,041 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.2)% | (69,354 | ) | ||||||
NET ASSETs–100.0% | $ | 38,954,687 | ||||||
Investment Abbreviation:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at August 31, 2010 was $1,156,313 which represented 3.0% of the Fund’s Net Assets. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Fundamental Value Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $37,683,016) | $ | 38,450,715 | ||
Investments in affiliated money market funds, at value and cost | 573,326 | |||
Total investments, at value (Cost $38,256,342) | 39,024,041 | |||
Receivable for: | ||||
Dividends and interest | 111,959 | |||
Fund shares sold | 4,240 | |||
Fund expenses absorbed | 7,723 | |||
Other assets | 28,512 | |||
Total assets | 39,176,475 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 154,895 | |||
Accrued fees to affiliates | 19,777 | |||
Accrued other operating expenses | 47,116 | |||
Total liabilities | 221,788 | |||
Net assets applicable to shares outstanding | $ | 38,954,687 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 41,409,053 | ||
Undistributed net investment income | 263,939 | |||
Undistributed net realized gain (loss) | (3,486,004 | ) | ||
Unrealized appreciation | 767,699 | |||
$ | 38,954,687 | |||
Net Assets: | ||||
Class A | $ | 12,509,021 | ||
Class B | $ | 23,064,530 | ||
Class C | $ | 3,094,554 | ||
Class Y | $ | 286,582 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 1,358,514 | |||
Class B | 2,526,106 | |||
Class C | 340,945 | |||
Class Y | 31,127 | |||
Class A: | ||||
Net asset value per share | $ | 9.21 | ||
Maximum offering price per share, (net asset value of $9.21 divided by 94.50%) | $ | 9.75 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 9.13 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 9.08 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 9.21 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Fundamental Value Fund
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Statement of Operations
For the eleven months ended August 31, 2010 and the year ended September 30, 2009
Eleven | ||||||||
months ended | Year ended | |||||||
August 31, | September 30, | |||||||
2010 | 2009 | |||||||
Investment income: | ||||||||
Dividends (net of $12,287 and $32,019 foreign withholding tax, respectively) | $ | 871,401 | $ | 1,210,459 | ||||
Interest | 69,331 | 84,061 | ||||||
Dividends from affiliated money market funds | 536 | 19,289 | ||||||
Total investment income | 941,268 | 1,313,809 | ||||||
Expenses | ||||||||
Advisory fees | 286,921 | 305,704 | ||||||
Administrative services fees | 38,375 | 36,502 | ||||||
Custodian fees | 5,206 | 10,795 | ||||||
Distribution fees: | ||||||||
Class A | 36,419 | 35,074 | ||||||
Class B | 67,523 | 48,117 | ||||||
Class C | 32,633 | 35,189 | ||||||
Transfer agent fees | 72,606 | 90,348 | ||||||
Trustees’ and officers’ fees and benefits | 1,681 | 2,422 | ||||||
Professional fees | 78,362 | 80,854 | ||||||
Reports to shareholder fees | 34,501 | 45,650 | ||||||
Other | 22,755 | 67,090 | ||||||
Total expenses | 676,982 | 757,745 | ||||||
Less: Fees waived | (1,237 | ) | (2,278 | ) | ||||
Net expenses | 675,745 | 755,467 | ||||||
Net investment income | 265,523 | 558,342 | ||||||
Realized and unrealized gain (loss) from: | ||||||||
Net realized gain (loss) from: | ||||||||
Investment securities | 2,607,749 | (5,791,381 | ) | |||||
Investment in affiliates | — | (123,733 | ) | |||||
Futures contracts | — | (222 | ) | |||||
Forward foreign currency contracts | — | (5,893 | ) | |||||
Foreign currency translation | — | 7,961 | ||||||
2,607,749 | (5,913,268 | ) | ||||||
Change in net unrealized appreciation (depreciation) of: | ||||||||
Investment securities | (4,161,805 | ) | 686,085 | |||||
Future contracts | — | (12,666 | ) | |||||
Foreign currency translation | — | 4 | ||||||
(4,161,805 | ) | 673,423 | ||||||
Net realized and unrealized gain (loss) | (1,554,056 | ) | (5,239,845 | ) | ||||
Net increase (decrease) in net assets resulting from operations | $ | (1,288,533 | ) | $ | (4,681,503 | ) | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statements of Changes in Net Assets
For the period October 1, 2009 through August 31, 2010 and the years ended September 30, 2009 and 2008
For the eleven | For the | For the | ||||||||||
months ended | year ended | year ended | ||||||||||
August 31, | September 30, | September 30, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Operations: | ||||||||||||
Net investment income | $ | 265,523 | $ | 558,342 | $ | 910,539 | ||||||
Net realized gain (loss) | 2,607,749 | (5,913,268 | ) | 2,709,560 | ||||||||
Change in net unrealized appreciation (depreciation) | (4,161,805 | ) | 673,423 | (17,972,524 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | (1,288,533 | ) | (4,681,503 | ) | (14,352,425 | ) | ||||||
Distributions to shareholders from net investment income: | ||||||||||||
Class A shares | (182,411 | ) | (305,854 | ) | (351,043 | ) | ||||||
Class B shares | (362,022 | ) | (651,479 | ) | (861,972 | ) | ||||||
Class C shares | (15,905 | ) | (52,518 | ) | (36,509 | ) | ||||||
Class Y shares | (4,507 | ) | (5,596 | ) | (8,309 | ) | ||||||
Total Distributions from net investment income | (564,845 | ) | (1,015,447 | ) | (1,257,833 | ) | ||||||
Distributions to shareholders from net realized gains: | ||||||||||||
Class A shares | — | (817,700 | ) | (2,169,807 | ) | |||||||
Class B shares | — | (1,623,014 | ) | (4,808,062 | ) | |||||||
Class C shares | — | (214,173 | ) | (503,923 | ) | |||||||
Class Y shares | — | (13,107 | ) | (41,521 | ) | |||||||
Total Distributions from net realized gains | — | (2,667,994 | ) | (7,523,313 | ) | |||||||
Net increase (decrease) from in net assets resulting from share transactions | (8,552,702 | ) | (6,377,388 | ) | (15,350,664 | ) | ||||||
Net increase (decrease) in net assets | (10,406,080 | ) | (14,742,332 | ) | (38,484,235 | ) | ||||||
Net Assets: | ||||||||||||
Beginning of year | 49,360,767 | 64,103,099 | 102,587,334 | |||||||||
End of year (includes undistributed net investment income of $263,939, $563,261 and $1,007,830, respectively) | $ | 38,954,687 | $ | 49,360,767 | $ | 64,103,099 | ||||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Fundamental Value Fund (the “Fund”) is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year changed from September 30 to August 31.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Fundamental Value Fund (the “Acquired Fund”), as a diversified, open-end management investment company. The Acquired Fund was reorganized on June 1, 2010, (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is to provide total return.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
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The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be |
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evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | ||
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
G. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
H. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
I. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0.67 | % | ||
Over $500 million | 0.62 | % | ||
Prior to the Reorganization, the Acquired Fund paid at advisory fee of $215,842 to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
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Effective on the date of Reorganization, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C and Class Y shares to 1.65%, 2.40%, 2.40% and 1.40%, respectively, of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco Advisers, Inc. mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period October 1, 2009 to August 31, 2010, the Adviser and MSIA waived advisory fees of $1,237.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, the Acquired Fund paid an administration fee of $25,772 to Morgan Stanley Services Company, Inc. For the period October 1, 2009 to August 31, 2010 and the year ended September 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees.
Also, the Trust has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $54,469 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the period October 1, 2009 to August 31, 2010 and the year ended September 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”), an affiliate of the Adviser. The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will reimburse IDI for distribution related expenses that IDI incurs up to a maximum of the following annual rates; (1) Class A — up to 0.25% of the average daily net assets of Class A shares; (2) Class B — up to 1.00% of the average daily net assets of Class B shares and (3) Class C — up to 1.00% of the average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by IDI, but not yet reimbursed to IDI may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. For the year ended August 31, 2010, the distribution fee was accrued for Class B shares at an annual rate of 0.27%.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Morgan Stanley Distributors Inc. (“MSDI”) to serve as the distributor for the Class A, Class B and Class C shares. MSDI had agreed to waive the 12b-1 fee on Class B shares to the extent it exceeds 0.24% of the average daily net assets of such shares on an annualized basis.
For the period October 1, 2009 to August 31, 2010 and the year ended September 30, 2009, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period October 1, 2009 to August 31, 2010, IDI advised the Fund that IDI retained $114 in front-end sales commissions from the sale of Class A shares and $0, $1,426 and $0 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs |
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reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 33,946,627 | $ | 2,176,545 | $ | — | $ | 36,123,172 | ||||||||
Corporate Debt Securities | — | 2,900,869 | — | 2,900,869 | ||||||||||||
Total Investments | $ | 33,946,627 | $ | 5,077,414 | $ | — | $ | 39,024,041 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the eleven months Ended August 31, 2010 and Year Ended September 30, 2009:
August 31, | September 30, | September 30, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Ordinary income | $ | 564,845 | $ | 1,015,494 | $ | 1,257,833 | ||||||
Long-term capital gain | — | 2,667,947 | 7,523,313 | |||||||||
Total distributions | $ | 564,845 | $ | 3,683,441 | $ | 8,781,146 | ||||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 264,341 | ||
Net unrealized appreciation — investments | 734,426 | |||
Temporary book/tax differences | (402 | ) | ||
Capital loss carryforward | (3,452,731 | ) | ||
Shares of beneficial interest | 41,409,053 | |||
Total net assets | $ | 38,954,687 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
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The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 920,802 | ||
August 31, 2018 | 2,531,929 | |||
Total capital loss carryforward | $ | 3,452,731 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the eleven months ended August 31, 2010 was $7,263,456 and $14,895,007, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 3,647,310 | ||
Aggregate unrealized (depreciation) of investment securities | (2,912,884 | ) | ||
Net unrealized appreciation of investment securities | $ | 734,426 | ||
Cost of investments for tax purposes is $38,289,615. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||||||||||
For the eleven | ||||||||||||||||||||||||
months ended | For the years ended September 30, | |||||||||||||||||||||||
August 31, 2010(a) | 2009 | 2008 | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Class A Shares | ||||||||||||||||||||||||
Sold | 1,357,993 | $ | 12,990,847 | 285,610 | $ | 2,306,144 | 247,998 | $ | 3,207,911 | |||||||||||||||
Reinvestment of dividends and distributions | 18,337 | 179,701 | 144,994 | 1,113,553 | 179,633 | 2,263,375 | ||||||||||||||||||
Redeemed | (1,613,951 | ) | (15,317,124 | ) | (597,635 | ) | (4,710,120 | ) | (774,513 | ) | (9,596,253 | ) | ||||||||||||
Net increase (decrease) — Class A | (237,621 | ) | (2,146,576 | ) | (167,031 | ) | (1,290,423 | ) | (346,882 | ) | (4,124,967 | ) | ||||||||||||
Class B Shares | ||||||||||||||||||||||||
Sold | 1,300,362 | 12,184,831 | 291,917 | 2,294,118 | 152,455 | 1,817,366 | ||||||||||||||||||
Reinvestment of dividends and distributions | 36,383 | 354,006 | 293,648 | 2,237,597 | 412,580 | 5,165,500 | ||||||||||||||||||
Redeemed | (1,918,187 | ) | (18,352,790 | ) | (1,177,436 | ) | (9,357,976 | ) | (1,410,144 | ) | (16,848,366 | ) | ||||||||||||
Net increase (decrease) — Class B | (581,442 | ) | (5,813,953 | ) | (591,871 | ) | (4,826,261 | ) | (845,109 | ) | (9,865,500 | ) | ||||||||||||
Class C Shares | ||||||||||||||||||||||||
Sold | 28,761 | 284,911 | 62,444 | 497,765 | 28,400 | 339,178 | ||||||||||||||||||
Reinvestment of dividends and distributions | 1,585 | 15,389 | 34,579 | 263,144 | 40,469 | 505,864 | ||||||||||||||||||
Redeemed | (100,487 | ) | (984,950 | ) | (128,874 | ) | (994,683 | ) | (91,505 | ) | (1,096,654 | ) | ||||||||||||
Net increase (decrease) — Class C | (70,141 | ) | (684,650 | ) | (31,851 | ) | (233,774 | ) | (22,636 | ) | (251,612 | ) | ||||||||||||
Class Y Shares | ||||||||||||||||||||||||
Sold | 15,486 | 155,453 | 3,307 | 26,642 | — | — | ||||||||||||||||||
Reinvestment of dividends and distributions | 461 | 4,507 | 2,438 | 18,703 | 3,479 | 43,796 | ||||||||||||||||||
Redeemed | (6,676 | ) | (67,483 | ) | (10,444 | ) | (72,275 | ) | (81,944 | ) | (1,152,381 | ) | ||||||||||||
Net increase (decrease) — Class Y | 9,271 | 92,477 | (4,699 | ) | (26,930 | ) | (78,465 | ) | (1,108,585 | ) | ||||||||||||||
Net increase in (decrease) in share activity | (879,933 | ) | $ | (8,552,702 | ) | (795,452 | ) | $ | (6,377,388 | ) | (1,293,092 | ) | $ | (15,350,664 | ) | |||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 81% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Effective November 30, 2010, all Invesco Funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
18 Invesco Fundamental Value Fund
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NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Class A Shares | ||||||||||||||||||||||||
For the eleven | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
August 31, | For the year ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.66 | $ | 10.85 | $ | 14.25 | $ | 14.29 | $ | 14.32 | $ | 13.10 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.06 | 0.10 | 0.13 | 0.17 | 0.15 | 0.13 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.39 | ) | (0.66 | ) | (2.24 | ) | 1.43 | 1.29 | 2.14 | |||||||||||||||
Total income (loss) from investment operations | (0.33 | ) | (0.56 | ) | (2.11 | ) | 1.60 | 1.44 | 2.27 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.12 | ) | (0.17 | ) | (0.18 | ) | (0.16 | ) | (0.12 | ) | (0.11 | ) | ||||||||||||
Net realized gain | — | (0.46 | ) | (1.11 | ) | (1.48 | ) | (1.35 | ) | (0.94 | ) | |||||||||||||
Total dividends and distributions | (0.12 | ) | (0.63 | ) | (1.29 | ) | (1.64 | ) | (1.47 | ) | (1.05 | ) | ||||||||||||
Net asset value, end of period | $ | 9.21 | $ | 9.66 | $ | 10.85 | $ | 14.25 | $ | 14.29 | $ | 14.32 | ||||||||||||
Total return(b) | (3.52 | )% | (3.61 | )% | (16.08 | )% | 11.81 | % | 10.95 | % | 17.99 | % | ||||||||||||
Net assets, end of period(c) | $ | 12,509 | $ | 15,418 | $ | 19,137 | $ | 30,067 | $ | 36,955 | $ | 36,759 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.51 | %(d)(e) | 1.65 | %(e) | 1.38 | %(e) | 1.30 | %(e) | 1.34 | % | 1.36 | % | ||||||||||||
Net investment income | 0.69 | %(d)(e) | 1.23 | %(e) | 1.09 | %(e) | 1.24 | %(e) | 1.06 | % | 0.93 | % | ||||||||||||
Rebate from affiliates | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | — | — | ||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover(g) | 16 | % | 57 | % | 16 | % | 25 | % | 28 | % | 37 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Net assets, end of period, is stated in thousands. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $15,872. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(f) | Amount is less than 0.005%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 9—Financial Highlights—(continued)
Class B Shares | ||||||||||||||||||||||||
For the eleven | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
August 31, | For the year ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.60 | $ | 10.79 | $ | 14.19 | $ | 14.23 | $ | 14.17 | $ | 12.98 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.06 | 0.11 | 0.14 | 0.19 | 0.16 | 0.03 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.41 | ) | (0.65 | ) | (2.23 | ) | 1.42 | 1.29 | 2.13 | |||||||||||||||
Total income (loss) from investment operations | (0.35 | ) | (0.54 | ) | (2.09 | ) | 1.61 | 1.45 | 2.16 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.12 | ) | (0.19 | ) | (0.20 | ) | (0.17 | ) | (0.04 | ) | (0.03 | ) | ||||||||||||
Net realized gain | — | (0.46 | ) | (1.11 | ) | (1.48 | ) | (1.35 | ) | (0.94 | ) | |||||||||||||
Total dividends and distributions | (0.12 | ) | (0.65 | ) | (1.31 | ) | (1.65 | ) | (1.39 | ) | (0.97 | ) | ||||||||||||
Net asset value, end of period | $ | 9.13 | $ | 9.60 | $ | 10.79 | $ | 14.19 | $ | 14.23 | $ | 14.17 | ||||||||||||
Total return(b) | (3.70 | )% | (3.47 | )% | (16.03 | )% | 11.98 | % | 11.07 | % | 17.27 | % | ||||||||||||
Net assets, end of period(c) | $ | 23,065 | $ | 29,818 | $ | 39,935 | $ | 64,470 | $ | 59,807 | $ | 67,448 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.54 | %(d)(e) | 1.57 | %(e) | 1.28 | %(e) | 1.20 | %(e) | 1.19 | % | 2.03 | % | ||||||||||||
Net investment income | 0.66 | %(d)(e) | 1.31 | %(e) | 1.19 | %(e) | 1.34 | %(e) | 1.21 | % | 0.26 | % | ||||||||||||
Rebate from affiliates | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | — | — | ||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(g) | 16 | % | 57 | % | 16 | % | 25 | % | 28 | % | 37 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Net assets, end of period, is stated in thousands. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $26,925. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(f) | Amount is less than 0.005%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 9—Financial Highlights—(continued)
Class C Shares | ||||||||||||||||||||||||
For the eleven | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
August 31, | For the year ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.52 | $ | 10.71 | $ | 14.07 | $ | 14.13 | $ | 14.19 | $ | 12.99 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)(a) | (0.01 | ) | 0.04 | 0.04 | 0.07 | 0.05 | 0.04 | |||||||||||||||||
Net realized and unrealized gain (loss) | (0.39 | ) | (0.66 | ) | (2.21 | ) | 1.41 | 1.27 | 2.13 | |||||||||||||||
Total income (loss) from investment operations | (0.40 | ) | (0.62 | ) | (2.17 | ) | 1.48 | 1.32 | 2.17 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.04 | ) | (0.11 | ) | (0.08 | ) | (0.06 | ) | (0.03 | ) | (0.03 | ) | ||||||||||||
Net realized gain | — | (0.46 | ) | (1.11 | ) | (1.48 | ) | (1.35 | ) | (0.94 | ) | |||||||||||||
Total dividends and distributions | (0.04 | ) | (0.57 | ) | (1.19 | ) | (1.54 | ) | (1.38 | ) | (0.97 | ) | ||||||||||||
Net asset value, end of period | $ | 9.08 | $ | 9.52 | $ | 10.71 | $ | 14.07 | $ | 14.13 | $ | 14.19 | ||||||||||||
Total return(b) | (4.20 | )% | (4.39 | )% | (16.64 | )% | 11.03 | % | 10.08 | % | 17.29 | % | ||||||||||||
Net assets, end of period(c) | $ | 3,095 | $ | 3,914 | $ | 4,743 | $ | 6,551 | $ | 7,195 | $ | 6,024 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 2.26 | %(d)(e) | 2.40 | %(e) | 2.11 | %(e) | 2.02 | %(e) | 2.05 | % | 1.98 | % | ||||||||||||
Net investment income (loss) | (0.06 | )%(d)(e) | 0.48 | %(e) | 0.36 | %(e) | 0.52 | %(e) | 0.35 | % | 0.31 | % | ||||||||||||
Rebate from affiliates | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | — | — | ||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(g) | 16 | % | 57 | % | 16 | % | 25 | % | 28 | % | 37 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Net assets, end of period, is stated in thousands. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $3,556. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(f) | Amount is less than 0.005%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 9—Financial Highlights—(continued)
Class Y Shares | ||||||||||||||||||||||||
For the eleven | ||||||||||||||||||||||||
months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
August 31, | For the year ended September 30, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.66 | $ | 10.86 | $ | 14.28 | $ | 14.31 | $ | 14.34 | $ | 13.13 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.09 | 0.12 | 0.17 | 0.21 | 0.18 | 0.16 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.40 | ) | (0.66 | ) | (2.26 | ) | 1.43 | 1.29 | 2.15 | |||||||||||||||
Total income (loss) from investment operations | (0.31 | ) | (0.54 | ) | (2.09 | ) | 1.64 | 1.47 | 2.31 | |||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.14 | ) | (0.20 | ) | (0.22 | ) | (0.19 | ) | (0.15 | ) | (0.16 | ) | ||||||||||||
Net realized gain | — | (0.46 | ) | (1.11 | ) | (1.48 | ) | (1.35 | ) | (0.94 | ) | |||||||||||||
Total dividends and distributions | (0.14 | ) | (0.66 | ) | (1.33 | ) | (1.67 | ) | (1.50 | ) | (1.10 | ) | ||||||||||||
Net asset value, end of period | $ | 9.21 | $ | 9.66 | $ | 10.86 | $ | 14.28 | $ | 14.31 | $ | 14.34 | ||||||||||||
Total return(b) | (3.30 | )% | (3.40 | )% | (15.92 | )% | 12.12 | % | 11.17 | % | 18.31 | % | ||||||||||||
Net assets, end of period(c) | $ | 287 | $ | 211 | $ | 288 | $ | 1,499 | $ | 1,565 | $ | 1,548 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.26 | %(d)(e) | 1.40 | %(e) | 1.13 | %(e) | 1.06 | %(e) | 1.10 | % | 1.11 | % | ||||||||||||
Net investment income | 0.94 | %(d)(e) | 1.48 | %(e) | 1.34 | %(e) | 1.48 | %(e) | 1.30 | % | 1.18 | % | ||||||||||||
Rebate from affiliates | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | 0.00 | %(f) | — | — | ||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(g) | 16 | % | 57 | % | 16 | % | 25 | % | 28 | % | 37 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Net assets, end of period, is stated in thousands. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $306. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(f) | Amount is less than 0.005%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 10—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
22 Invesco Fundamental Value Fund
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Fundamental Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Fundamental Value Fund (formerly known as Morgan Stanley Fundamental Value Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended September 30, 2009 and prior were audited by other independent auditors whose report dated November 25, 2009 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
23 Invesco Fundamental Value Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 932.20 | $ | 6.92 | $ | 1,018.05 | $ | 7.22 | 1.42 | % | ||||||||||||||||||
B | 1,000.00 | 930.70 | 7.15 | 1,017.80 | 7.48 | 1.47 | ||||||||||||||||||||||||
C | 1,000.00 | 928.40 | 10.55 | 1,014.27 | 11.02 | 2.17 | ||||||||||||||||||||||||
Y | 1,000.00 | 933.10 | 5.70 | 1,019.31 | 5.96 | 1.17 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
24 Invesco Fundamental Value Fund
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Approval of Investment Advisory and Sub-Advisory Agreements |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Fundamental Value Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed the information provided differently than another Trustee.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
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services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for the period ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Fundamental Value Fund was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 2,698,724 | 89,898 | 176,589 | 0 |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
MS-FVAL-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco Large Cap Relative Value Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
11 | Financial Statements | |
13 | Notes to Financial Statements | |
19 | Financial Highlights | |
20 | Auditor’s Report | |
21 | Fund Expenses | |
22 | Approval of Investment Advisory and Sub-Advisory Agreements | |
24 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco Large Cap Relative Value Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco Large Cap Relative Value Fund |
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Management’s Discussion of Fund Performance
Performance summary
For the eight months ended August 31, 2010, Invesco Large Cap Relative Value Fund underperformed the Russell 1000 Value Index, the Fund’s benchmark. As the Fund uses a bottom-up stock selection approach, stock selection in various sectors was the primary reason the Fund underperformed its benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | -6.53 | % | ||
Class B Shares* | -7.06 | |||
Class C Shares* | -7.06 | |||
Class Y Shares | -6.41 | |||
Russell 1000 Value Index▼ (Broad Market/Style-Specific Index) | -3.03 | |||
Lipper Large-Cap Value Funds Index▼ (Peer Group Index) | -5.40 | |||
▼Lipper Inc. | ||
*Share class incepted during the reporting period. For a detailed explanation of Fund performance see page 7. |
How we invest
We call our investment philosophy value with a catalyst. We believe that undervalued companies which are experiencing positive changes (i.e., catalysts) have the potential to generate long-term stock price growth for shareholders. We generally seek to identify companies that are out of favor with investors, under-earning relative to their potential and attractively valued. For these companies, we attempt to identify catalysts that may improve the financial results and/or correct the under-valuation. Examples of catalysts typically include improved operational efficiency, changing industry dynamics and/or a change in management.
We initially identify potential investments through a series of quantitative screens including, but not limited to, return on capital and enterprise value-to-
sales metrics. We then conduct fundamental research on the most attractive opportunities. The research process includes a thorough review of a company’s financial statements, an evaluation of its competitive position and stability, and meetings with its executives. During the research process, we also value the company under various scenarios to determine if the investment is an attractive opportunity relative to its risks. This is also where we typically identify the positive catalyst, a prerequisite for potential investment. Finally, we generally set a price target for a stock based on normalized earnings and historical valuation multiples.
In short, our objective is to exploit negative sentiment toward a company’s stock by analyzing the company’s operations in the context of a cyclical environment and identifying one or more
catalysts that may improve the company’s financial performance. Improved financial performance, in turn, has the potential to drive the company’s stock price higher.
We typically sell an investment when it reaches our estimate of fair value or when we identify a more attractive investment opportunity.
Market conditions and your Fund
At the beginning of the eight-month period covered by this report, riskier assets were outperforming securities considered safe havens, like U.S. Treasuries. This continued through the middle of April 2010. However, renewed credit problems in Europe and the market correction that occurred in May, June and into August, created a more uncertain environment which prompted many investors to favor safety over risk. Although recent market volatility created challenges, it also created some investment opportunities, as companies with positive fundamentals became more attractively valued. Also, despite the market finishing lower at the reporting period end, there were also a number of positives, including improved market liquidity, lean corporate infrastructures and merger and acquisition activity.
An overweight allocation to the consumer discretionary sector was one of the largest contributors to performance of the Fund, as media stocks performed well due to an increase in advertising revenue over the reporting period.
Stock selection in the health care sector was also one of the contributors to Fund performance. Notably, Genzyme’s stock price rose on the announcement from Sanofi-Aventis of their interest in
Portfolio Composition
By sector
Financials | 20.1 | % | ||
Energy | 12.0 | |||
Health Care | 11.4 | |||
Consumer Discretionary | 11.3 | |||
Information Technology | 10.8 | |||
Consumer Staples | 10.5 | |||
Industrials | 9.6 | |||
Utilities | 4.6 | |||
Telecommunication Services | 2.9 | |||
Materials | 1.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.1 |
Top 10 Equity Holdings*
1. | JPMorgan Chase & Co. | 4.6 | % | |||||
2. | Marsh & McLennan Cos., Inc. | 3.3 | ||||||
3. | General Electric Co. | 3.2 | ||||||
4. | Viacom, Inc. | 2.8 | ||||||
5. | eBay, Inc. | 2.6 | ||||||
6. | Kraft Foods, Inc. | 2.3 | ||||||
7. | American Electric Power Co., Inc. | 2.3 | ||||||
8. | Occidental Petroleum Corp. | 2.2 | ||||||
9. | Bank of America Corp. | 2.1 | ||||||
10. | Wal-Mart Stores, Inc. | 2.0 |
Total Net Assets | $225.8 million | |||
Total Number of Holdings* | 78 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Large Cap Relative Value Fund |
Table of Contents
acquiring Genzyme. We sold Genzyme on the acquisition announcement and resulting run-up in stock price.
The information technology sector was the largest relative detractor from performance during the reporting period. The Fund was overweight the sector versus the Russell 1000 Value Index and was adversely affected by exposure to stocks in the hardware and equipment industry. Notably detracting from Fund performance was Hewlett-Packard, as the stock sold off significantly on the announcement that the CEO was leaving.
Stock selection in the financials sector also detracted from Fund performance. In general, we focused on what we believed were lower risk financial companies with stronger balance sheets and less credit risk given the systemic risk in most financial stocks. However, the Fund had no exposure to REITs (real estate investment trusts), which performed well throughout the period. The Fund’s lack of exposure to REITs was based on our concern that valuations were high and that the commercial real estate market had weakened.
Finally, stock selection in the energy sector also detracted from Fund performance. The Fund had most of its energy sector exposure in exploration and production companies. We had exposure to BP and Anadarko Petroleum. Each company was negatively affected by the oil spill in the Gulf of Mexico. During the period we eliminated our position in BP and significantly reduced our exposure to Anadarko Petroleum.
Equity markets experienced a strong recovery during the period covered by this report. We believe that market volatility and the market correction that began in the second quarter of 2010 have created opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals could be reflected in those companies’ stock prices.
As always, we would like to caution investors against making investment decisions based on short-term performance. We recommend that you consult a financial adviser to discuss your individual financial program.
Thank you for your investment in Invesco Large Cap Relative Value Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Thomas Bastian
Chartered Financial Analyst, portfolio manager, is manager of Invesco Large Cap Relative Value Fund. He joined Invesco in 2010. Mr. Bastian earned a B.A. in accounting from St. John’s University and an M.B.A. in finance from the University of Michigan. He is a member of the CFA Institute and the Houston Society of Financial Analysts.
Mark Laskin
Chartered Financial Analyst, portfolio manager, is manager of Invesco Large Cap Relative Value Fund. He joined Invesco in 2010. Mr. Laskin earned a B.A. in history from Swarthmore College and an M.B.A. and M.A. from the Wharton School and Lauder Institute, respectively, of the University of Pennsylvania.
Mary Jayne Maly
Chartered Financial Analyst, portfolio manager, is manager of Invesco Large Cap Relative Value Fund. She joined Invesco in 2010. Ms. Maly earned a B.A. from the University of Pittsburgh and an M.B.A. from the American Graduate School of International Management. She is a member of the Houston Society of Financial Analysts.
Sergio Marcheli
Portfolio manager, is manager of Invesco Large Cap Relative Value Fund. He joined Invesco in 2010. Mr. Marcheli earned a B.B.A. from the University of Houston and an M.B.A. from the University of St. Thomas.
James Roeder
Chartered Financial Analyst, portfolio manager, is manager of Invesco Large Cap Relative Value Fund. He joined Invesco in 2010. Mr. Roeder earned a B.S. in accounting from Clemson University and an M.B.A. in economics and finance from the University of Chicago Graduate School of Business. He is a member of the CFA Institute and the Houston Society of Financial Analysts. He is also a Certified Public Accountant.
5 | Invesco Large Cap Relative Value Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class without Sales Charges since Inception
Fund and index data from 1/31/90
Results of a $10,000 Investment – Oldest Share Class with Sales Charges since Inception
Index data from 12/31/95, Fund data from 1/2/96
Past performance cannot guarantee comparable future results.
The performance data shown in the first chart above is that of the Fund’s Class Y shares. The performance of the Fund’s other share classes will differ primarily due to different sales charge structures and class expenses and may be greater than or less than the performance of the Fund’s Class Y shares. The data shown in this chart includes reinvested distributions, Fund expenses and management fees. Index results include reinvested dividends.
The performance data shown in the second chart above is that of the Fund’s
Class A shares. The performance of the Fund’s other share classes will differ primarily due to different sales charge structures and class expenses and may be greater than or less than the performance of the Fund’s Class A shares. The data shown in the second chart above includes reinvested distributions, Fund expenses and management fees. Index results include reinvested dividends, but they do not reflect sales charges.
Performance of the peer group reflects fund expenses and management fees; performance of a market index does not. Performance shown in the charts and table does not reflect deduction of taxes
a shareholder would pay on Fund distributions or sale of Fund shares.
Both charts above are logarithmic charts, which present the fluctuations in the value of the Fund’s share class and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In both charts, each segment represents a doubling, or 100% change, in the value of the investment.
6 | Invesco Large Cap Relative Value Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable
sales charges
sales charges
Class A Shares | ||||
Inception (1/2/96) | 5.99 | % | ||
10 Years | 1.18 | |||
5 Years | -1.72 | |||
1 Year | -3.51 | |||
Class B Shares | ||||
10 Years | 1.15 | % | ||
5 Years | -1.69 | |||
1 Year | -3.77 | |||
Class C Shares | ||||
10 Years | 0.99 | % | ||
5 Years | -1.35 | |||
1 Year | 0.23 | |||
Class Y Shares | ||||
Inception (1/31/90) | 8.18 | % | ||
10 Years | 2.00 | |||
5 Years | -0.35 | |||
1 Year | 2.30 | |||
Effective June 1, 2010, Class I and Class P shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class Y and Class A shares, respectively, of Invesco Large Cap Relative Value Fund. Returns shown above for Class Y and Class A shares are blended returns of the predecessor fund and Invesco Large Cap Relative Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
Class B and Class C shares incepted on June 1, 2010. Performance shown prior to that date is that of the predecessor fund’s Class P shares restated to reflect the higher 12b-1 fees applicable to Class B and Class C shares, respectively. Class B and Class C shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class P shares was January 2, 1996.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||
Inception (1/2/96) | 5.91 | % | ||
10 Years | 1.95 | |||
5 Years | -1.35 | |||
1 Year | 8.14 | |||
Class B Shares | ||||
10 Years | 1.91 | % | ||
5 Years | -1.33 | |||
1 Year | 8.51 | |||
Class C Shares | ||||
10 Years | 1.76 | % | ||
5 Years | -0.99 | |||
1 Year | 12.51 | |||
Class Y Shares | ||||
Inception (1/31/90) | 8.13 | % | ||
10 Years | 2.78 | |||
5 Years | 0.00 | |||
1 Year | 14.69 | |||
value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 0.96%, 1.71%, 1.71% and 0.71%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.01%, 1.76%, 1.76% and 0.76%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class Y
shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Large Cap Relative Value Fund |
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Invesco Large Cap Relative Value Fund’s investment objective is to seek high total return by investing primarily in equity securities that the Adviser believes to be undervalued relative to the stock market in general at the time of purchase.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. | |
n | REITs are susceptible to risk associated with the ownership of real estate and the real estate industry in general. In addition, REITs depends on specialized management skills, may not be diversified, may have less trading volume and may be subject to more abrupt or erratic price movements than the overall securities market. Investments in REITs may involve duplication of management fees and certain other expenses. | |
n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. |
n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. | |
n | Value stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. Value stocks can continue to be undervalued for long periods of time and may not ever realize their full value. |
About indexes used in this report
n | The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |
n | The Lipper Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value funds tracked by Lipper. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | IVABX | |
Class B Shares | IVAHX | |
Class C Shares | IVAKX | |
Class Y Shares | MSIVX |
8 | Invesco Large Cap Relative Value Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.9% | ||||||||
Air Freight & Logistics–0.5% | ||||||||
FedEx Corp. | 14,793 | $ | 1,154,594 | |||||
Apparel Retail–0.5% | ||||||||
Gap, Inc. (The) | 65,324 | 1,103,322 | ||||||
Asset Management & Custody Banks–1.2% | ||||||||
Janus Capital Group, Inc. | 61,726 | 560,472 | ||||||
State Street Corp. | 64,372 | 2,258,170 | ||||||
2,818,642 | ||||||||
Automobile Manufacturers–0.6% | ||||||||
Ford Motor Co.(b) | 127,027 | 1,434,135 | ||||||
Cable & Satellite–2.8% | ||||||||
Comcast Corp. (Class A) | 210,183 | 3,598,333 | ||||||
Time Warner Cable, Inc. | 52,945 | 2,732,491 | ||||||
6,330,824 | ||||||||
Communications Equipment–1.2% | ||||||||
Cisco Systems, Inc.(b) | 133,735 | 2,681,387 | ||||||
Computer Hardware–2.6% | ||||||||
Dell, Inc.(b) | 193,898 | 2,282,180 | ||||||
Hewlett-Packard Co. | 93,219 | 3,587,067 | ||||||
5,869,247 | ||||||||
Consumer Electronics–1.0% | ||||||||
Sony Corp. (ADR) (Japan) | 83,634 | 2,340,916 | ||||||
Data Processing & Outsourced Services–1.1% | ||||||||
Western Union Co. (The) | 156,240 | 2,449,843 | ||||||
Diversified Banks–1.4% | ||||||||
US Bancorp | 63,264 | 1,315,891 | ||||||
Wells Fargo & Co. | 81,295 | 1,914,497 | ||||||
3,230,388 | ||||||||
Diversified Chemicals–1.6% | ||||||||
Dow Chemical Co. (The) | 73,378 | 1,788,222 | ||||||
PPG Industries, Inc. | 29,084 | 1,914,600 | ||||||
3,702,822 | ||||||||
Diversified Support Services–0.6% | ||||||||
Cintas Corp. | 50,068 | 1,276,233 | ||||||
Drug Retail–1.2% | ||||||||
Walgreen Co. | 104,399 | 2,806,245 | ||||||
Electric Utilities–4.6% | ||||||||
American Electric Power Co., Inc. | 146,034 | 5,171,064 | ||||||
Edison International | 41,700 | 1,407,375 | ||||||
Entergy Corp. | 24,306 | 1,916,285 | ||||||
FirstEnergy Corp. | 52,125 | 1,904,126 | ||||||
10,398,850 | ||||||||
Food Distributors–1.0% | ||||||||
Sysco Corp. | 81,758 | 2,247,527 | ||||||
Health Care Distributors–0.6% | ||||||||
Cardinal Health, Inc. | 45,584 | 1,365,697 | ||||||
Health Care Equipment–1.1% | ||||||||
Covidien PLC (Ireland) | 70,622 | 2,495,782 | ||||||
Home Improvement Retail–1.3% | ||||||||
Home Depot, Inc. | 104,203 | 2,897,885 | ||||||
Human Resource & Employment Services–0.9% | ||||||||
Manpower, Inc. | 28,134 | 1,195,695 | ||||||
Robert Half International, Inc. | 43,583 | 940,521 | ||||||
2,136,216 | ||||||||
Hypermarkets & Super Centers–2.0% | ||||||||
Wal-Mart Stores, Inc. | 89,831 | 4,504,126 | ||||||
Industrial Conglomerates–5.5% | ||||||||
General Electric Co. | 498,622 | 7,220,047 | ||||||
Siemens AG (ADR) (Germany) | 19,232 | 1,741,073 | ||||||
Tyco International Ltd. (Switzerland) | 93,405 | 3,482,138 | ||||||
12,443,258 | ||||||||
Industrial Machinery–1.5% | ||||||||
Dover Corp. | 38,502 | 1,723,350 | ||||||
Ingersoll-Rand PLC (Ireland) | 50,491 | 1,642,472 | ||||||
3,365,822 | ||||||||
Insurance Brokers–3.3% | ||||||||
Marsh & McLennan Cos., Inc. | 313,700 | 7,440,964 | ||||||
Integrated Oil & Gas–7.4% | ||||||||
ConocoPhillips | 49,535 | 2,597,120 | ||||||
Exxon Mobil Corp. | 37,669 | 2,228,498 | ||||||
Hess Corp. | 54,029 | 2,714,957 | ||||||
Occidental Petroleum Corp. | 68,244 | 4,987,272 | ||||||
Royal Dutch Shell PLC (ADR) (United Kingdom) | 77,770 | 4,125,698 | ||||||
16,653,545 | ||||||||
Integrated Telecommunication Services–1.1% | ||||||||
Verizon Communications, Inc. | 82,008 | 2,420,056 | ||||||
Internet Software & Services–3.6% | ||||||||
eBay, Inc.(b) | 252,136 | 5,859,640 | ||||||
Yahoo!, Inc.(b) | 178,347 | 2,332,779 | ||||||
8,192,419 | ||||||||
Investment Banking & Brokerage–1.8% | ||||||||
Charles Schwab Corp. (The) | 224,158 | 2,860,256 | ||||||
Morgan Stanley | 46,874 | 1,157,319 | ||||||
4,017,575 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Large Cap Relative Value Fund
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Shares | Value | |||||||
IT Consulting & Other Services–1.0% | ||||||||
Amdocs Ltd.(b) | 83,721 | $ | 2,196,002 | |||||
Life & Health Insurance–0.7% | ||||||||
Principal Financial Group, Inc. | 67,435 | 1,554,377 | ||||||
Managed Health Care–1.8% | ||||||||
UnitedHealth Group, Inc. | 131,172 | 4,160,776 | ||||||
Motorcycle Manufacturers–0.4% | ||||||||
Harley-Davidson, Inc. | 32,878 | 799,593 | ||||||
Movies & Entertainment–4.7% | ||||||||
Time Warner, Inc. | 142,690 | 4,277,846 | ||||||
Viacom, Inc. (Class B) | 202,166 | 6,352,056 | ||||||
10,629,902 | ||||||||
Office Services & Supplies–0.6% | ||||||||
Avery Dennison Corp. | 40,244 | 1,308,735 | ||||||
Oil & Gas Equipment & Services–1.5% | ||||||||
Cameron International Corp.(b) | 19,898 | 731,849 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 47,816 | 2,550,027 | ||||||
3,281,876 | ||||||||
Oil & Gas Exploration & Production–3.2% | ||||||||
Anadarko Petroleum Corp. | 78,960 | 3,631,370 | ||||||
Devon Energy Corp. | 35,199 | 2,121,796 | ||||||
Noble Energy, Inc. | 19,691 | 1,374,038 | ||||||
7,127,204 | ||||||||
Other Diversified Financial Services–7.7% | ||||||||
Bank of America Corp. | 373,544 | 4,650,623 | ||||||
Citigroup, Inc.(b) | 590,850 | 2,197,962 | ||||||
JPMorgan Chase & Co. | 288,487 | 10,489,387 | ||||||
17,337,972 | ||||||||
Packaged Foods & Meats–3.6% | ||||||||
Kraft Foods, Inc. (Class A) | 172,897 | 5,178,265 | ||||||
Unilever N.V. (NY Registered Shares) (Netherlands) | 108,180 | 2,898,142 | ||||||
8,076,407 | ||||||||
Personal Products–1.1% | ||||||||
Avon Products, Inc. | 83,127 | 2,418,996 | ||||||
Pharmaceuticals–7.9% | ||||||||
Abbott Laboratories | 35,856 | 1,769,135 | ||||||
Bayer AG (ADR) (Germany) | 38,030 | 2,327,303 | ||||||
Bristol-Myers Squibb Co. | 167,443 | 4,366,913 | ||||||
Merck & Co., Inc. | 103,185 | 3,627,985 | ||||||
Pfizer, Inc. | 212,474 | 3,384,711 | ||||||
Roche Holding AG (ADR) (Switzerland) | 66,375 | 2,258,323 | ||||||
17,734,370 | ||||||||
Property & Casualty Insurance–1.1% | ||||||||
Chubb Corp. | 45,676 | 2,517,661 | ||||||
Regional Banks–2.8% | ||||||||
BB&T Corp. | 55,690 | 1,231,863 | ||||||
Fifth Third Bancorp | 102,432 | 1,131,873 | ||||||
PNC Financial Services Group, Inc. | 79,283 | 4,040,262 | ||||||
6,403,998 | ||||||||
Semiconductor Equipment–0.3% | ||||||||
Lam Research Corp.(b) | 20,047 | 723,897 | ||||||
Semiconductors–1.0% | ||||||||
Intel Corp. | 130,743 | 2,316,766 | ||||||
Soft Drinks–1.6% | ||||||||
Coca-Cola Co. (The) | 34,369 | 1,921,915 | ||||||
Coca-Cola Enterprises, Inc. | 60,151 | 1,711,897 | ||||||
3,633,812 | ||||||||
Wireless Telecommunication Services–1.9% | ||||||||
Vodafone Group PLC (ADR) (United Kingdom) | 174,136 | 4,210,609 | ||||||
Total Common Stocks & Other Equity Interests (Cost $236,021,523) | 214,211,273 | |||||||
Money Market Funds–4.8% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 5,451,329 | 5,451,329 | ||||||
Premier Portfolio–Institutional Class(c) | 5,451,329 | 5,451,329 | ||||||
Total Money Market Funds (Cost $10,902,658) | 10,902,658 | |||||||
TOTAL INVESTMENTS-99.7% (Cost $246,924,181) | 225,113,931 | |||||||
OTHER ASSETS LESS LIABILITIES–0.3% | 652,020 | |||||||
NET ASSETS–100.0% | $ | 225,765,951 | ||||||
Investment Abbreviation:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $236,021,523) | $ | 214,211,273 | ||
Investments in affiliated money market funds, at value and cost | 10,902,658 | |||
Total investments, at value (Cost $246,924,181) | 225,113,931 | |||
Receivables for: | ||||
Investments sold | 309,588 | |||
Fund shares sold | 135,328 | |||
Dividends | 523,177 | |||
Other assets | 57,188 | |||
Total assets | 226,139,212 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 190,870 | |||
Fund shares reacquired | 47,069 | |||
Accrued fees to affiliates | 99,033 | |||
Accrued other operating expenses | 36,289 | |||
Total liabilities | 373,261 | |||
Net assets applicable to shares outstanding | $ | 225,765,951 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 264,164,381 | ||
Undistributed net investment income | 516,935 | |||
Undistributed net realized gain (loss) | (17,105,115 | ) | ||
Unrealized appreciation (depreciation) | (21,810,250 | ) | ||
$ | 225,765,951 | |||
Net Assets: | ||||
Class A | $ | 35,441,853 | ||
Class B | $ | 9,788 | ||
Class C | $ | 9,791 | ||
Class Y | $ | 190,304,519 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 3,978,085 | |||
Class B | 1,101 | |||
Class C | 1,101 | |||
Class Y | 21,342,130 | |||
Class A: | ||||
Net asset value per share | $ | 8.91 | ||
Maximum offering price per share | ||||
(Net asset value of $8.91 divided by 94.50%) | $ | 9.43 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 8.89 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 8.89 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 8.92 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the period January 1, 2010 through August 31, 2010 and the year ended December 31, 2009
Eight months | ||||||||
ended | Year ended | |||||||
August 31, | December 31, | |||||||
2010 | 2009 | |||||||
Investment income: | ||||||||
Dividends (net of foreign withholding taxes of $10,760 and $240, respectively) | $ | 3,617,333 | $ | 5,192,648 | ||||
Dividends from affiliated money market funds | 3,299 | 37,182 | ||||||
Total investment income | 3,620,632 | 5,229,830 | ||||||
Expenses: | ||||||||
Advisory fees | 839,717 | 1,094,569 | ||||||
Administrative services fees | 113,241 | 181,617 | ||||||
Custodian fees | 8,010 | 23,270 | ||||||
Distribution fees: | ||||||||
Class A | 82,284 | 99,319 | ||||||
Class B | 25 | — | ||||||
Class C | 30 | — | ||||||
Transfer agent fees — A, B, C and Y | 211,282 | 166,330 | ||||||
Trustees’ and officers’ fees and benefits | 4,897 | 7,997 | ||||||
Other | 77,210 | 135,753 | ||||||
Total expenses | 1,336,696 | 1,708,855 | ||||||
Less: Fees waived | (89,588 | ) | (36,041 | ) | ||||
Net expenses | 1,247,108 | 1,672,814 | ||||||
Net investment income | 2,373,524 | 3,557,016 | ||||||
Realized and unrealized gain (loss) from: | ||||||||
Net realized gain (loss) from: | ||||||||
Investment securities | 13,747,427 | (7,646,679 | ) | |||||
Foreign currencies | — | (1,608 | ) | |||||
Foreign currency contracts | — | (804 | ) | |||||
13,747,427 | (7,649,091 | ) | ||||||
Change in net unrealized appreciation (depreciation) of investment securities | (32,466,179 | ) | 58,943,307 | |||||
Net realized and unrealized gain (loss) | (18,718,752 | ) | 51,294,216 | |||||
Net increase (decrease) in net assets resulting from operations | $ | (16,345,228 | ) | $ | 54,851,232 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the period January 1, 2010 through August 31, 2010 and years ended December 31, 2009 and 2008
Eight | ||||||||||||
months ended | Year ended | Year ended | ||||||||||
August 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Operations: | ||||||||||||
Net investment income | $ | 2,373,524 | $ | 3,557,016 | $ | 4,841,723 | ||||||
Net realized gain (loss) | 13,747,427 | (7,649,091 | ) | (13,816,204 | ) | |||||||
Change in net unrealized appreciation (depreciation) | (32,466,179 | ) | 58,943,307 | (81,221,714 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | (16,345,228 | ) | 54,851,232 | (90,196,195 | ) | |||||||
Distributions to shareholders from net investment income: | ||||||||||||
Class A | (302,493 | ) | (540,679 | ) | (751,903 | ) | ||||||
Class B | (29 | ) | — | — | ||||||||
Class C | (29 | ) | — | — | ||||||||
Class Y | (1,543,619 | ) | (3,012,868 | ) | (4,045,874 | ) | ||||||
Total distributions from net investment income | (1,846,170 | ) | (3,553,547 | ) | (4,797,777 | ) | ||||||
Distributions to shareholders from net realized gains: | ||||||||||||
Class A | — | — | (205,494 | ) | ||||||||
Class Y | — | — | (1,014,350 | ) | ||||||||
Total distributions from net realized gains | — | — | (1,219,844 | ) | ||||||||
Share transactions–net: | ||||||||||||
Class A | (11,653,435 | ) | 6,292,646 | 995,628 | ||||||||
Class B | 10,029 | — | — | |||||||||
Class C | 10,278 | — | — | |||||||||
Class Y | (8,569,624 | ) | 21,688,989 | (6,971,865 | ) | |||||||
Net increase (decrease) in net assets resulting from share transactions | (20,202,752 | ) | 27,981,635 | (5,976,237 | ) | |||||||
Net increase (decrease) in net assets | (38,394,150 | ) | 79,279,320 | (102,190,053 | ) | |||||||
Net assets: | ||||||||||||
Beginning of year | 264,160,101 | 184,880,781 | 287,070,834 | |||||||||
End of year (includes undistributed net investment income of $516,935, $(10,419) and $22,177, respectively) | $ | 225,765,951 | $ | 264,160,101 | $ | 184,880,781 | ||||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Large Cap Relative Value Fund is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from December 31 to August 31.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Large Cap Relative Value Fund (the “Acquired Fund”), an investment portfolio of Morgan Stanley Institutional Fund Inc. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class P and Class I shares received Class A and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class P and Class I shares prior to the Reorganization is included with Class A and Class Y shares, respectively, throughout this report.
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The Fund’s investment objective is to seek high total return by investing primarily in equity securities that the Adviser believes to be undervalued relative to the stock market in general at the time of purchase.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in |
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the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $150 million | 0 | .50% | ||
Next $100 million | 0 | .45% | ||
Next $100 million | 0 | .40% | ||
Over $350 million | 0 | .35% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $541,712 to Morgan Stanley Investment Management Inc. (“MSIM”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, and Class Y shares to 0.95%, 1.70%, 1.70% and 0.70%, respectively, of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Prior to June 1, 2010, MSIM had voluntarily agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver of Class I and Class P shares to 0.70% and 0.95%, respectively, of the Acquired Fund’s average daily net assets.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market
15 Invesco Large Cap Relative Value Fund
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funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period January 1, 2010 to August 31, 2010, the Adviser and MSIM waived advisory fees of $1,417 and $88,171, respectively. For the year ended December 31, 2009, MSIM waived advisory fees of $36,041.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, the Acquired Fund paid an administration fee of $91,733 to MSIM and JPMorgan Investor Services Co. For the period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees.
Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $145,415 to Morgan Stanley Services Company Inc., which served as the Acquired Fund’s transfer agent. For the period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into master distribution agreements with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Class A, Class B, Class C and Class Y shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B and Class C shares (collectively the “Plans”). The Fund, pursuant to the Plans, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Class A shares and 1.00% of the average daily net assets of each class of Class B and Class C shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Morgan Stanley Distribution Inc. (“MSDI”) to serve as the distributor for the Class I and Class P shares. Pursuant to such agreements, for the period January 1, 2010 to August 31, 2010 the Acquired Fund paid $43,225 to MSDI.
For the period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $22 in front-end sales commissions from the sale of Class A shares and $0, $0 and $73 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the period January 1, 2010 to August 31, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 220,528,305 | $ | 4,585,626 | $ | — | $ | 225,113,931 | ||||||||
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NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Period January 1, 2010 to August 31, 2010 and the years ended December 31, 2009 and 2008:
2010 | 2009 | 2008 | ||||||||||
Ordinary income | $ | 1,846,170 | $ | 3,553,547 | $ | 4,797,777 | ||||||
Long-term capital gain | — | — | 1,219,844 | |||||||||
Total distributions | $ | 1,846,170 | $ | 3,553,547 | $ | 6,017,621 | ||||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 516,935 | ||
Net unrealized appreciation (depreciation) — investments | (21,808,166 | ) | ||
Capital loss carryforward | (17,107,199 | ) | ||
Shares of beneficial interest | 264,164,381 | |||
Total net assets | $ | 225,765,951 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $13,741,318 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 17,107,199 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
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NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the period January 1, 2010 to August 31, 2010 was $60,459,985 and $83,571,662, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 5,214,118 | ||
Aggregate unrealized (depreciation) of investment securities | (27,022,284 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (21,808,166 | ) | |
Cost of investments for tax purposes is $246,922,097. |
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward, on August 31, 2010, undistributed net realized gain (loss) was increased by $23,591,242 and shares of beneficial interest decreased by $23,591,242. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||||||||||
Eight months ended | Years ended December 31, | |||||||||||||||||||||||
August 31, 2010(a) | 2009 | 2008 | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Sold: | ||||||||||||||||||||||||
Class A | 436,507 | $ | 4,252,649 | 1,123,981 | $ | 8,975,796 | 841,574 | $ | 7,908,399 | |||||||||||||||
Class B(b) | 1,098 | 10,000 | — | — | — | — | ||||||||||||||||||
Class C(b) | 1,902 | 17,622 | — | — | — | — | ||||||||||||||||||
Class Y | 3,039,187 | 29,758,628 | 8,322,250 | 66,094,588 | 3,121,756 | 32,040,380 | ||||||||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||||||||||
Class A | 15,960 | 143,795 | 66,694 | 538,599 | 100,860 | 953,017 | ||||||||||||||||||
Class B(b) | 3 | 29 | — | — | — | — | ||||||||||||||||||
Class C(b) | 3 | 29 | — | — | — | — | ||||||||||||||||||
Class Y | 82,064 | 740,212 | 371,731 | 3,003,453 | 528,952 | 5,041,743 | ||||||||||||||||||
Reacquired: | ||||||||||||||||||||||||
Class A | (1,702,393 | ) | (16,049,879 | ) | (405,848 | ) | (3,221,749 | ) | (742,491 | ) | (7,865,788 | ) | ||||||||||||
Class C(b) | (804 | ) | (7,373 | ) | — | — | — | — | ||||||||||||||||
Class Y | (4,072,356 | ) | (39,068,464 | ) | (5,510,984 | ) | (47,409,052 | ) | (4,503,187 | ) | (44,053,988 | ) | ||||||||||||
Net increase (decrease) in share activity | (2,198,829 | ) | $ | (20,202,752 | ) | 3,967,824 | $ | 27,981,635 | (652,536 | ) | $ | (5,976,237 | ) | |||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 95% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Commencement date of June 1, 2010. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | expenses | Ratio of net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | net assets | assets without | to average net | investment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | assets excluding | income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | Redemption | value, end | Total | end of period | and/or expenses | and/or expenses | non operating | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | Fees | of period | Return(b) | (000s omitted) | absorbed | absorbed | expenses | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eight months ended 08/31/10 | $ | 9.59 | $ | 0.07 | $ | (0.69 | ) | $ | (0.62 | ) | $ | (0.06 | ) | $ | — | $ | (0.06 | ) | $ | — | $ | 8.91 | (6.53 | )% | $ | 35,442 | 0.91 | %(d) | 0.96 | %(d) | — | % | 1.14 | %(d) | 24 | % | ||||||||||||||||||||||||||||
Year ended 12/31/09 | 7.84 | 0.11 | 1.75 | 1.86 | (0.11 | ) | — | (0.11 | ) | 0.00 | (e) | 9.59 | 24.00 | (f) | 50,149 | 0.94 | (g) | 0.95 | (g) | 0.94 | (g) | 1.36 | (g)(h) | 59 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 11.85 | 0.18 | (3.96 | ) | (3.78 | ) | (0.18 | ) | (0.05 | ) | (0.23 | ) | 0.00 | (e) | 7.84 | (32.21 | ) | 34,856 | 0.92 | (g) | 0.92 | (g) | 0.92 | (g) | 1.81 | (g) | 50 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 12.18 | 0.19 | 0.15 | 0.34 | (0.18 | ) | (0.49 | ) | (0.67 | ) | 0.00 | (e) | 11.85 | 2.72 | 50,287 | 0.92 | (g) | 0.92 | (g) | 0.92 | (g) | 1.48 | (g) | 31 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.09 | 0.17 | 1.61 | 1.78 | (0.17 | ) | (0.52 | ) | (0.69 | ) | 0.00 | (e) | 12.18 | 16.38 | 63,300 | 0.93 | 0.93 | 0.93 | 1.44 | 33 | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 10.51 | 0.12 | 0.91 | 1.03 | (0.12 | ) | (0.33 | ) | (0.45 | ) | — | 11.09 | 9.81 | 101,499 | 0.93 | 0.93 | 0.93 | 1.10 | 46 | |||||||||||||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eight months ended 08/31/10(i) | 9.11 | 0.01 | (0.20 | ) | (0.19 | ) | (0.03 | ) | — | (0.03 | ) | — | 8.89 | (2.13 | ) | 10 | 1.62 | (d) | 1.62 | (d) | — | 0.43 | (d) | 24 | ||||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eight months ended 08/31/10(i) | 9.11 | 0.01 | (0.20 | ) | (0.19 | ) | (0.03 | ) | — | (0.03 | ) | — | 8.89 | (2.13 | ) | 10 | 1.62 | (d) | 1.62 | (d) | — | 0.43 | (d) | 24 | ||||||||||||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eight months ended 08/31/10 | 9.60 | 0.09 | (0.70 | ) | (0.61 | ) | (0.07 | ) | — | (0.07 | ) | — | 8.92 | (6.41 | ) | 190,305 | 0.66 | (d) | 0.71 | (d) | — | 1.39 | (d) | 24 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 7.85 | 0.13 | 1.75 | 1.88 | (0.13 | ) | — | (0.13 | ) | 0.00 | (e) | 9.60 | 24.28 | (f) | 214,011 | 0.69 | (g) | 0.70 | (g) | 0.69 | (g) | 1.61 | (g)(h) | 59 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 11.86 | 0.21 | (3.96 | ) | (3.75 | ) | (0.21 | ) | (0.05 | ) | (0.26 | ) | 0.00 | (e) | 7.85 | (32.01 | ) | 150,025 | 0.67 | (g) | 0.67 | (g) | 0.67 | (g) | 2.06 | (g) | 50 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 12.20 | 0.21 | 0.16 | 0.37 | (0.22 | ) | (0.49 | ) | (0.71 | ) | 0.00 | (e) | 11.86 | 2.90 | 236,784 | 0.67 | (g) | 0.67 | (g) | 0.67 | (g) | 1.71 | (g) | 31 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.10 | 0.20 | 1.62 | 1.82 | (0.20 | ) | (0.52 | ) | (0.72 | ) | 0.00 | (e) | 12.20 | 16.47 | 211,904 | 0.68 | 0.68 | 0.68 | 1.71 | 33 | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 10.52 | 0.15 | 0.90 | 1.05 | (0.14 | ) | (0.33 | ) | (0.47 | ) | — | 11.10 | 10.07 | 102,973 | 0.68 | 0.68 | 0.68 | 1.36 | 46 | |||||||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $49,438, $10, $12 and $215,879 for Class A, Class B, Class C and Class Y shares, respectively. | |
(e) | Amount is less than $0.005 per share. | |
(f) | Performance was positively impacted by approximately 0.26% due to the receipt of proceeds from the settlements of class action suits involving primarily two of the Fund’s past holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had these settlements not occurred, the total return for Class A and Class Y shares would have been approximately 23.74% and 24.02%, respectively. | |
(g) | The ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is 0.01%, 0.01% and less than 0.005% for the years ended December 31, 2009, 2008 and 2007, respectively. | |
(h) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 1.35% and 1.60% for the year ended December 31, 2009 for Class A and Class Y shares, respectively. | |
(i) | Commencement date of June 1, 2010. |
NOTE 11—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco Large Cap Relative Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Large Cap Relative Value Fund (formerly known as Morgan Stanley Large Cap Relative Value Fund, an investment portfolio of Morgan Stanley Institutional Fund, Inc.; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by other independent auditors whose report dated February 25, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2,3 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 928.00 | $ | 4.37 | $ | 1,020.67 | $ | 4.58 | 0.90 | % | ||||||||||||||||||
B | 1,000.00 | 978.70 | 4.04 | 1,017.04 | 8.24 | 1.62 | ||||||||||||||||||||||||
C | 1,000.00 | 978.70 | 4.04 | 1,017.04 | 8.24 | 1.62 | ||||||||||||||||||||||||
Y | 1,000.00 | 929.10 | 3.16 | 1,021.93 | 3.31 | 0.65 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010 (as of close of business June 1, 2010 through August 31, 2010 for the Class B and Class C shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. For the Class B and Class C shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 92 (as of close of business June 1, 2010 through August 31, 2010)/365. Because the Class B and Class C shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. |
3 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Class B and Class C shares of the Fund and other funds because such data is based on a full six month period. |
21 Invesco Large Cap Relative Value Fund
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Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Large Cap Relative Value Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for
breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services.
22 Invesco Large Cap Relative Value Fund
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The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
T-3
Table of Contents
Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
MS-LCRV-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders August 31, 2010
Invesco New York Tax-Free Income Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
12 | Financial Statements | |
14 | Notes to Financial Statements | |
21 | Financial Highlights | |
25 | Auditor’s Report | |
26 | Fund Expenses | |
27 | Approval of Investment Advisory and Sub-Advisory Agreements | |
29 | Tax Information | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco New York Tax-Free Income Fund |
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Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco New York Tax-Free Income Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
All share classes of Invesco New York Tax-Free Income Fund posted positive returns during the eight-month reporting period ended August 31, 2010. The Fund’s Class A shares, at net asset value (NAV), outperformed both the Fund’s broad market and style-specific benchmark, the Barclays Capital New York Exempt Index, and the Fund’s peer group index, the Lipper New York Municipal Debt Funds Index. The Fund’s focus on the long-end of the yield curve and overweight positions in lower quality securities as well as non-rated issues were the main contributors to relative outperformance at NAV versus the Barclays Capital New York Exempt Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 7.52 | % | ||
Class B Shares | 7.52 | |||
Class C Shares | 7.20 | |||
Class Y Shares | 7.74 | |||
Barclays Capital New York Exempt Index▼ (Broad Market/Style-Specific Index) | 6.65 | |||
Lipper New York Municipal Debt Funds Index■ (Peer Group Index) | 7.12 | |||
▼ | Invesco, IDC via FactSet; ■Lipper Inc. |
How we invest
The Fund will normally invest at least 80% of its assets in securities that pay interest exempt from federal, New York state and New York City income taxes or other local income taxes. We generally invest the Fund’s assets in investment grade, New York municipal obligations. These municipal obligations will have the following ratings at the time of purchase:
n | Municipal bonds–within the four highest grades by Moody’s Investors Service, Inc. (Moody’s), Standard & Poor’s Ratings Group (S&P), or Fitch Ratings (Fitch) | |
n | Municipal notes–within the two highest grades or, if not rated, have outstanding bonds within the four highest grades by Moody’s, S&P or Fitch |
n | Municipal commercial paper–within the highest grade by Moody’s, S&P or Fitch We may also invest in unrated securities, which we judge to be of comparable quality to the securities described above. Additionally, we may invest up to 5% of the Fund’s net assets in municipal obligations rated below investment grade (commonly known as junk bonds) or, if unrated, of comparable quality based on our determination. |
We buy and sell New York municipal securities with a view toward seeking a high level of current income exempt from federal and New York state and New York city income taxes or other local income taxes. In selecting securities for purchase and sale, we use our research capabilities to identify and monitor investment
opportunities. In conducting research and analysis, we consider a number of factors, including general market and economic conditions and credit and interest rate risk.
Portfolio securities are typically sold when our assessment of any of these factors materially change. Measures of interest rate risk that we evaluate include duration, coupon, maturity and call protection. Measures of credit risk evaluated include individual issuer analysis, sector weightings, geographic distribution and quality spreads.
Market conditions and your Fund
Market conditions during the eight-month period covered in this report were influenced by two broad themes: private sector recovery and concerns over sovereign creditworthiness. In the U.S. and most of the developed world, a gradual and somewhat lackluster economic recovery continued, with central banks keeping interest rates at extremely low levels, and few of them withdrawing their quantitative easing measures. This has helped private sector companies improve their balance sheets and earnings following the global financial crisis that began to dissipate in early 2009. Recently, however, investor skepticism of global governments’ abilities to retire huge amounts of debt without affecting economic growth rates caused sovereign debt distress (especially for
Portfolio Composition†
By credit quality, based on total investments
AAA | 13.7 | % | ||
AA+ | 4.6 | |||
AA | 9.2 | |||
AA- | 13.8 | |||
A+ | 13.4 | |||
A | 4.2 | |||
A- | 0.8 | |||
BBB+ | 9.0 | |||
BBB | 7.6 | |||
BBB- | 5.6 | |||
BB+ | 3.8 | |||
BB- | 0.5 | |||
N/A | 13.0 | |||
Non-Rated | 1.8 | |||
Cash | -1.0 |
Top 10 Holdings*
1. | New York State Dormitory Authority – Cornell University | 7.0 | % | |||||
2. | New York State Dormitory Authority – State University | 3.2 | ||||||
3. | Puerto Rico Highway & Transportation Authority | 3.1 | ||||||
4. | New York City Transitional Finance Authority | 3.0 | ||||||
5. | New York City Health & Hospital Corp. | 3.0 | ||||||
6. | New York City Industrial Development Agency | 2.9 | ||||||
7. | New York State Dormitory Authority – Suffolk County | 2.8 | ||||||
8. | City of New York | 2.4 | ||||||
9. | Long Island Power Authority | 2.3 | ||||||
10. | New York City Housing Development Corp. | 2.0 |
Total Net Assets | $72.2 million | |||
Total Number of Holdings* | 97 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
† | Source: Standard and Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “Non-Rated” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Standard and Poor’s rating methodology, please visit www.standardandpoors.com and select ‘Understanding Ratings’ under Rating Resources on the homepage. | |
* | Excluding cash equivalent holdings. |
4 | Invesco New York Tax-Free Income Fund |
Table of Contents
Greece and other southern euro zone countries) and became a focal point of investor concern in the first half of 2010.
In the U.S., economic recovery was present, although uneven and possibly slowing, as stubbornly high unemployment continued to weigh on the U.S. economy. Real gross domestic product (GDP), the broadest measure of overall U.S. economic activity, increased at an annual rate of 1.7% in the second quarter of 2010. In the first quarter, real GDP increased 3.7%.1 The U.S. Federal Reserve (the Fed) maintained a very accommodative monetary policy throughout the period, with the federal funds target rate unchanged in its range of zero to 0.25%.2 The Fed recently described its view of the U.S. economy: “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”2 Consequently, it was widely expected that the Fed would continue to keep rates low for an extended period.
Sector performance was driven by credit quality spread tightening largely a result of continued flows into the municipal market combined with less tax-exempt issuance. As a result, BBB-rated and lower credit quality bonds outperformed. Fund flows continued to remain strong after a record 2009. In addition, the new issuance during the reporting period was about 1.5% ahead of last year’s pace: at $261.0 billion versus 257.3 billion.3 However, approximately 30% of supply since the beginning of the year was in the form of taxable Build America Bonds.3
Historically, the state of New York has benefited from its broad-based and wealthy economy. However, the economic slowdown and concerns on Wall Street, as well as the volatility in the financial markets posed challenges for the state and its financial position. Like many states, New York is currently looking for solutions to compensate for declines in revenues, particularly falling personal income taxes.
The Fund generated positive absolute returns for the period. In terms of yield curve positioning, an overweight to the long-end of the curve contributed to relative returns versus the Barclays Capital New York Exempt Index as this part of the curve generated the highest returns over the reporting period.
As discussed earlier, during the reporting period lower rated tax-exempt bonds experienced significant price increases relative to high quality issues. An overweight exposure to BBB and non-rated bonds was a positive contributor to relative and absolute returns.
At a sector level, the Fund’s underweight position in the tax-supported sector, specifically local general obligation bonds, and, to a lesser extent, the dedicated tax sector, was the primary performance detractor on a relative basis. At the industry level, we were overweight hospital revenue bonds, which contributed to positive relative returns. However, we continued to monitor the health care sector in light of recent health care reform, and we continued to diversify out of the sector by selling weaker issuers on analyst recommendations, including swapping deep discount hospital bonds for new issue higher coupon bonds and university revenue bonds.
Our overweight exposure to industrial development revenue/pollution control revenue bonds over the reporting period also contributed to relative performance. However, our underweight in the transportation sector dampened relative returns.
We use inverse floating rate securities in Invesco New York Tax-Free Income Fund to help manage duration, yield curve exposure and credit exposure, and to potentially enhance yield. Over the reporting period, the exposure to inverse floating rate securities within the fund contributed positively to the Fund return.
Thank you for investing in Invesco New York Tax-Free Income Fund and for sharing our long-term investment horizon.
1 | Bureau of Economic Analysis | |
2 | U.S. Federal Reserve | |
3 | Barclays Capital |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Mark Paris
Portfolio manager, is manager of Invesco New York Tax-Free Income Fund. Mr. Paris joined Invesco in 2010. He earned a B.B.A. in finance from the City University of New York.
Robert Stryker
Chartered Financial Analyst, portfolio manager, is manager of Invesco New York Tax-Free Income Fund. Mr. Stryker joined Invesco in 2010. He earned a B.S. in finance from the University of Illinois, Chicago.
Julius Williams
Portfolio manager, is manager of Invesco New York Tax-Free Income Fund. Mr. Williams joined Invesco in 2010. Mr.
Williams earned a B.A. in economics and sociology and an M.E. in educational psychology from the University of Virginia.
5 | Invesco New York Tax-Free Income Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Fund data from 4/25/85, index data from 4/30/85
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges. Perfor-
mance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years
shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
6 | Invesco New York Tax-Free Income Fund |
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Average Annual Total Returns | ||||
As of 8/31/10, including maximum applicable sales charges | ||||
Class A Shares | ||||
Inception (7/28/97) | 4.66 | % | ||
10 Years | 4.99 | |||
5 Years | 3.88 | |||
1 Year | 6.25 | |||
Class B Shares | ||||
Inception (4/25/85) | 6.49 | % | ||
10 Years | 5.16 | |||
5 Years | 4.63 | |||
1 Year | 6.53 | |||
Class C Shares | ||||
Inception (7/28/97) | 4.43 | % | ||
10 Years | 4.85 | |||
5 Years | 4.33 | |||
1 Year | 9.91 | |||
Class Y Shares | ||||
Inception (7/28/97) | 5.20 | % | ||
10 Years | 5.62 | |||
5 Years | 5.15 | |||
1 Year | 11.76 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco New York Tax-Free Income Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco New York Tax-Free Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 0.90%, 0.89%, 1.40% and 0.65%, respectively.1 The total annual Fund
Average Annual Total Returns | ||||
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges. | ||||
Class A Shares | ||||
Inception (7/28/97) | 4.42 | % | ||
10 Years | 4.89 | |||
5 Years | 3.23 | |||
1 Year | 6.44 | |||
Class B Shares | ||||
Inception (4/25/85) | 6.38 | % | ||
10 Years | 5.05 | |||
5 Years | 4.01 | |||
1 Year | 6.75 | |||
Class C Shares | ||||
Inception (7/28/97) | 4.20 | % | ||
10 Years | 4.75 | |||
5 Years | 3.67 | |||
1 Year | 10.17 | |||
Class Y Shares | ||||
Inception (7/28/97) | 4.97 | % | ||
10 Years | 5.51 | |||
5 Years | 4.51 | |||
1 Year | 12.03 |
operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.13%, 1.12%, 1.63% and 0.88%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 4.75% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information |
7 | Invesco New York Tax-Free Income Fund |
Table of Contents
Invesco New York Tax-Free Income Fund’s investment objective is to provide a high level of current income exempt from federal, New York state and New York city income tax or other local income taxes, consistent with the preservation of capital.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. | |
Please see the prospectus for more information. | ||
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer’s securities and may lead to the issuer’s inability to honor its contractual obligations, including making timely payment of interest and principal. | |
n | Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration. | |
n | Leases and installment purchase or conditional sale contract (which may provide for title to be leased asset to pass eventually to the issuer) have developed as a means for governmental issuers to acquire property and equipment without the necessity of complying with the constitutional and statutory requirements generally applicable for the issuance of debt. Certain lease obligations contain non-appropriation for the issuance of debt. Certain lease obligations contain non-appropriation clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for that purpose by the appropriate legislative body on an annual or other |
periodic basis. Consequently, continued lease payments on those lease obligations containing non-appropriation clauses are dependent on future legislative actions. If these legislative actions do not occur, the holders of the lease obligation may experience difficulty in exercising their rights, including deposition of the property. | ||
n | The issuers of private activity bonds in which the Fund may invest may be negatively impacted by conditions affecting either the general credit of the user of the private activity project or the project itself. Conditions such as regulatory and environmental restrictions and economic downturns may lower the need for these facilities and the ability of the uses of the project to pay for the facilities. This could cause a decline in the Fund’s value. | |
n | The inverse floating rate municipal obligations in which the fund may invest include derivative instruments such as residual interest bonds (RIBs) or tender option bonds (TOBs). Such instruments are typically created by a special purpose trust that holds long-term fixed rate bonds and sells two classes of beneficial interests: short-term floating rate interests, which are sold to third-party investors, and inverse floating residual interests, which are purchased by the Fund. There short-term floating rate interests have first priority on the cash flow from the bond held by the special purpose trust and the fund is paid the residual cash flow from the bond held by the special purpose trust. | |
n | The Fund may invest up to 20% of its total assets in securities subject to the federal alternative minimum tax. |
About indexes used in this report
n | The Barclays Capital New York Exempt Index an unmanaged index that tracks the performance of New York issued municipal bonds rated at least Baa or BBB by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, respectively and with maturities of 2 years or greater. | |
n | The Lipper New York Municipal Debt Fund Index is an unmanaged index considered representative of New York municipal debt funds tracked by Lipper. | |
n | The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | NYFAX | |
Class B Shares | NYFBX | |
Class C Shares | NYFCX | |
Class Y Shares | NYFDX |
8 | Invesco New York Tax-Free Income Fund |
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Schedule of Investments
August 31, 2010
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Municipal Obligations–(106.6%) | ||||||||||||||||
Guam–(0.4%) | ||||||||||||||||
Guam Power Authority, Ser 2010 A | 5.50 | % | 10/01/40 | $ | 185 | $ | 185,944 | |||||||||
Territory of Guam Section 30, Ser A | 5.625 | % | 12/01/29 | 135 | 143,540 | |||||||||||
329,484 | ||||||||||||||||
New York–(96.7%) | ||||||||||||||||
Albany County Airport Authority, Ser 2010 A (AGM Insd)(a) | 5.00 | % | 12/15/25 | 500 | 550,785 | |||||||||||
Brooklyn Arena Local Development Corp., Ser 2009(b) | 0.00 | 07/15/34 | 1,510 | 346,273 | ||||||||||||
Brooklyn Arena Local Development Corp., Ser 2009 | 6.25 | % | 07/15/40 | 200 | 214,656 | |||||||||||
Brooklyn Arena Local Development Corp., Ser 2009 | 6.375 | % | 07/15/43 | 200 | 214,804 | |||||||||||
Chautauqua County Industrial Development Agency, Dunkirk Power Project | 5.875 | % | 04/01/42 | 425 | 444,129 | |||||||||||
City of New York, Ser 2008 F1 | 5.50 | % | 11/15/28 | 750 | 865,687 | |||||||||||
City of New York, Subser 1993 A-10(c)(d)(e) | 0.24 | % | 08/01/16 | 180 | 180,000 | |||||||||||
City of New York, Subser 2005 E-2(c)(d)(e) | 0.25 | % | 08/01/34 | 600 | 600,000 | |||||||||||
City of New York, Subser 2006 I-8(c)(d)(e) | 0.25 | % | 04/01/36 | 1,700 | 1,700,000 | |||||||||||
City of New York, Subser 2008 G-1 | 6.25 | % | 12/15/35 | 400 | 477,064 | |||||||||||
City of New York, Subser 2008 I-1 | 5.00 | % | 02/01/25 | 405 | 456,054 | |||||||||||
City of New York, Subser 2009 I-1 | 5.25 | % | 04/01/32 | 900 | 1,002,807 | |||||||||||
City of Troy Capital Resource Corp., Rensselaer Polytechnic Ser 2010 A | 5.00 | % | 09/01/30 | 500 | 524,060 | |||||||||||
County of Nassau, Ser 2009 (AGC Insd)(a) | 5.00 | % | 10/01/27 | 675 | 766,962 | |||||||||||
Essex County Industrial Development Agency, Ser A (AMT) | 5.20 | % | 12/01/23 | 500 | 500,415 | |||||||||||
Long Island Power Authority, Ser 2000 A (AGM Insd)(a)(b) | 0.00 | % | 06/01/18 | 2,000 | 1,653,500 | |||||||||||
Long Island Power Authority, Ser 2003 C (CIFG Insd)(a) | 5.25 | % | 09/01/29 | 405 | 479,702 | |||||||||||
Madison County Industrial Development Agency, Colgate University Project Ser 2003 B | 5.00 | % | 07/01/33 | 1,000 | 1,028,510 | |||||||||||
Metropolitan Transportation Authority, Dedicated Tax Refg Ser 2002 A (AGM Insd)(a) | 5.25 | % | 11/15/24 | 500 | 539,665 | |||||||||||
Metropolitan Transportation Authority, Dedicated Tax Ser 2009 B | 5.00 | % | 11/15/34 | 500 | 539,760 | |||||||||||
Metropolitan Transportation Authority, Ser 2009 B | 5.25 | % | 11/15/27 | 615 | 711,094 | |||||||||||
Nassau County Industrial Development Agency, Ser A | 5.875 | % | 01/01/18 | 500 | 511,510 | |||||||||||
Nassau County Tobacco Settlement Corp., Ser 2006 | 5.25 | % | 06/01/26 | 1,000 | 955,540 | |||||||||||
New York City Health & Hospital Corp., Health Ser 2003 A (AMBAC Insd)(a) | 5.25 | % | 02/15/22 | 2,000 | 2,159,380 | |||||||||||
New York City Housing Development Corp., East Midtown Project Ser 1978 | 6.50 | % | 11/15/18 | 1,327 | 1,331,223 | |||||||||||
New York City Housing Development Corp., Ruppert Project Project Ser 1978 | 6.50 | % | 11/15/18 | 1,384 | 1,457,947 | |||||||||||
New York City Industrial Development Agency, 7 World Trade Center, LLC Ser 2005 A | 6.25 | % | 03/01/15 | 425 | 426,551 | |||||||||||
New York City Industrial Development Agency, Airis JFK I LLC Ser 2001 A (AMT) | 5.50 | % | 07/01/28 | 1,000 | 905,790 | |||||||||||
New York City Industrial Development Agency, IAC/Interactive Corp., Ser 2005 | 5.00 | % | 09/01/35 | 625 | 588,475 | |||||||||||
New York City Industrial Development Agency, New York Stock Exchange Refg Ser 2009 | 5.00 | % | 05/01/25 | 500 | 548,185 | |||||||||||
New York City Industrial Development Agency, Polytechnic University Refg Ser 2007 (ACA Insd)(a) | 5.25 | % | 11/01/37 | 500 | 486,560 | |||||||||||
New York City Industrial Development Agency, Queens Baseball Stadium Ser 2006 (AMBAC Insd)(a) | 5.00 | % | 01/01/46 | 1,250 | 1,172,337 | |||||||||||
New York City Industrial Development Agency, Staten Island University Hospital | 6.375 | % | 07/01/31 | 420 | 424,683 | |||||||||||
New York City Industrial Development Agency, Terminal One Group Association Ser 2005 (AMT) | 5.50 | % | 01/01/24 | 2,000 | 2,085,100 | |||||||||||
New York City Municipal Water Finance Authority, Water and Sewer System Second General Resolution Ser 2009 FF | 5.50 | % | 06/15/40 | 1,000 | 1,139,990 | |||||||||||
New York City Transitional Finance Authority, 2010 Subser A-1(f) | 5.00 | % | 05/01/30 | 1,965 | 2,199,187 | |||||||||||
New York City Transitional Finance Authority, Building Aid, Ser 2009 S-3 | 5.25 | % | 01/15/27 | 500 | 565,525 | |||||||||||
New York City Transitional Finance Authority, Building Aid, Ser 2009 S-3 | 5.25 | % | 01/15/39 | 500 | 545,745 | |||||||||||
New York City Transitional Finance Authority, Ser 2009 2 | 6.00 | % | 07/15/33 | 350 | 410,393 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco New York Tax-Free Income Fund
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Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
New York–(continued) | ||||||||||||||||
New York City Transitional Finance Authority, Ser 2009 S-5 | 5.00 | % | 01/15/31 | $ | 595 | $ | 635,859 | |||||||||
New York Counties Tobacco Trust IV, Ser 2005 A | 5.00 | % | 06/01/45 | 1,000 | 753,730 | |||||||||||
New York Liberty Development Corp., Ser 2010 3 | 6.375 | % | 07/15/49 | 500 | 537,350 | |||||||||||
New York Mortgage Agency, Homeowner Ser 143 (AMT) | 4.90 | % | 10/01/37 | 975 | 976,043 | |||||||||||
New York State Dormitory Authority, Brooklyn Law School Ser 2009 | 5.75 | % | 07/01/33 | 660 | 729,934 | |||||||||||
New York State Dormitory Authority, Catholic Health Long Island–St Francis Hospital Ser 2004 | 5.00 | % | 07/01/27 | 1,000 | 1,020,890 | |||||||||||
New York State Dormitory Authority, Cornell University–Ser 2009 A(f) | 5.00 | % | 07/01/35 | 4,725 | 5,053,340 | |||||||||||
New York State Dormitory Authority, Court Facilities Lease Ser 2005 A (AMBAC Insd)(a) | 5.50 | % | 05/15/27 | 710 | 860,200 | |||||||||||
New York State Dormitory Authority, Court Facilities Lease Ser 2005 A (AMBAC Insd)(a) | 5.50 | % | 05/15/31 | 555 | 649,861 | |||||||||||
New York State Dormitory Authority, Fordham University Ser 2008 B (AGC Insd)(a) | 5.00 | % | 07/01/33 | 500 | 537,665 | |||||||||||
New York State Dormitory Authority, Manhattan College Ser 2007 A (RADIAN Insd)(a) | 5.00 | % | 07/01/41 | 400 | 394,400 | |||||||||||
New York State Dormitory Authority, Manhattan Marymount 2009 | 5.25 | % | 07/01/29 | 500 | 519,475 | |||||||||||
New York State Dormitory Authority, Mental Health Services Facilities Improvement Ser A (AGM Insd)(a) | 5.00 | % | 02/15/27 | 500 | 546,465 | |||||||||||
New York State Dormitory Authority, Montefiore Hospital–FHA Insured Mtge Ser 2004 (NATL-RE & FGIC Insd)(a) | 5.00 | % | 08/01/29 | 1,000 | 1,037,620 | |||||||||||
New York State Dormitory Authority, New York School District Ser 2008 D (AGC Insd)(a) | 5.75 | % | 10/01/24 | 500 | 585,890 | |||||||||||
New York State Dormitory Authority, New York School District Ser 2009 C (AGC Insd)(a) | 5.00 | % | 10/01/24 | 500 | 568,330 | |||||||||||
New York State Dormitory Authority, New York University Ser 1 (CR) (BHAC & AMBAC Insd)(a) | 5.50 | % | 07/01/31 | 680 | 820,189 | |||||||||||
New York State Dormitory Authority, New York University Ser 2008 | 5.00 | % | 07/01/38 | 660 | 703,289 | |||||||||||
New York State Dormitory Authority, North Shore Long Island Jewish, Ser 2009 A | 5.50 | % | 05/01/37 | 500 | 528,900 | |||||||||||
New York State Dormitory Authority, Orange Regional Medical Center Ser 2008 | 6.125 | % | 12/01/29 | 500 | 517,770 | |||||||||||
New York State Dormitory Authority, School District Ser 2002 C (NATL-RE Insd)(a) | 5.25 | % | 04/01/21 | 1,000 | 1,085,450 | |||||||||||
New York State Dormitory Authority, School District Ser 2002 E (NATL-RE Insd)(a) | 5.50 | % | 10/01/17 | 1,000 | 1,081,880 | |||||||||||
New York State Dormitory Authority, St Francis College Ser 2010 | 5.00 | % | 10/01/40 | 350 | 356,934 | |||||||||||
New York State Dormitory Authority, St Josephs College Ser 2010 | 5.25 | % | 07/01/35 | 500 | 517,440 | |||||||||||
New York State Dormitory Authority, State University Ser 1993 A | 5.25 | % | 05/15/15 | 2,000 | 2,292,500 | |||||||||||
New York State Dormitory Authority, Suffolk County Judicial Ser 1986 (ETM) | 7.375 | % | 07/01/16 | 1,665 | 1,990,524 | |||||||||||
New York State Dormitory Authority, Winthrop South Nassau University Health Ser 2003 B | 5.50 | % | 07/01/23 | 750 | 774,022 | |||||||||||
New York State Energy Research & Development Authority, Ser 1991 B(c)(d)(g) | 13.076 | % | 07/01/26 | 700 | 702,968 | |||||||||||
New York State Environmental Facilities Corp., Ser 2010 C | 5.00 | % | 10/15/39 | 400 | 438,536 | |||||||||||
New York State Environmental Facilities Corp., State Clean Water and Drinking Water, Ser 2005 B | 5.50 | % | 04/15/35 | 310 | 387,178 | |||||||||||
New York State Environmental Facilities Corp., State Clean Water and Drinking Water, Ser 2009 A(f) | 5.13 | % | 06/15/38 | 900 | 985,878 | |||||||||||
New York State Thruway Authority, Ser 2007 H (NATL-RE & FGIC Insd)(a) | 5.00 | % | 01/01/29 | 1,000 | 1,074,470 | |||||||||||
New York State Thruway Authority, Ser 2009 B | 5.00 | % | 04/01/29 | 500 | 551,860 | |||||||||||
New York State Urban Development Corp., Service Contract Ref Ser 2008 B | 5.25 | % | 01/01/24 | 750 | 843,585 | |||||||||||
North Syracuse Central School District, Onondaga County Ref Ser 2009 A (NATL-RE & FGIC Insd)(a) | 5.00 | % | 06/15/23 | 935 | 1,105,058 | |||||||||||
Oneida County Industrial Development Agency, St. Elizabeth Medical Center, Ser A | 5.875 | % | 12/01/29 | 425 | 425,081 | |||||||||||
Onondaga Civic Development Corp., Le Moyne College Project Ser 2010 | 5.375 | % | 07/01/40 | 440 | 453,006 | |||||||||||
Seneca County Industrial Development Agency, Seneca Meadows, Inc. Ser 2008 (AMT)(h) | 6.625 | % | 10/01/35 | 350 | 354,564 | |||||||||||
Suffolk County Industrial Development Agency, Jeffersons Ferry Ser 2006 | 5.00 | % | 11/01/28 | 1,000 | 970,880 | |||||||||||
Town of Hempstead Local Development Corp., Molloy College, Ser 2009 | 5.75 | % | 07/01/39 | 545 | 584,720 | |||||||||||
Triborough Bridge & Tunnel Authority, Ser 2008 | 4.75 | % | 11/15/29 | 200 | 215,836 | |||||||||||
Triborough Bridge & Tunnel Authority, Ser 2008 | 5.00 | % | 11/15/37 | 500 | 534,385 | |||||||||||
Trust for Cultural Resources, Carnegie Hall Ser A | 5.00 | % | 12/01/39 | 350 | 369,061 | |||||||||||
TSASC, Inc., Tobacco Settlement Ser 2006-1 | 5.125 | % | 06/01/42 | 475 | 384,964 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco New York Tax-Free Income Fund
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Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
New York–(continued) | ||||||||||||||||
United Nations Development Corp., Ser 2009 A | 5.00 | % | 07/01/26 | $ | 810 | $ | 898,023 | |||||||||
Westchester Tobacco Asset Securitization, Ser 2005 | 5.125 | % | 06/01/45 | 1,000 | 763,840 | |||||||||||
69,829,891 | ||||||||||||||||
Puerto Rico–(8.2%) | ||||||||||||||||
Puerto Rico Commonwealth Infrastructure Financing Authority, Ser 2005 C (AMBAC Insd)(a) | 5.50 | % | 07/01/27 | 275 | 304,788 | |||||||||||
Puerto Rico Electric Power Authority, Ser 2007 TT | 5.00 | % | 07/01/37 | 1,000 | 1,024,930 | |||||||||||
Puerto Rico Electric Power Authority, Ser WW | 5.25 | % | 07/01/33 | 500 | 524,495 | |||||||||||
Puerto Rico Highway & Transportation Authority, Refg Ser 1993 X | 5.50 | % | 07/01/15 | 2,000 | 2,219,140 | |||||||||||
Puerto Rico Infrastructure Financing Authority, Ser 2000 A(i) | 5.375 | % | 10/01/10 | 1,000 | 1,014,320 | |||||||||||
Puerto Rico Sales Tax Financing Corp., Ser 2009 A(i) | 5.00 | % | 08/01/39 | 345 | 360,076 | |||||||||||
Puerto Rico Sales Tax Financing Corp., Ser 2010 A(b) | 0.00 | % | 08/01/34 | 1,000 | 239,770 | |||||||||||
Puerto Rico Sales Tax Financing Corp., Ser 2010 A | 5.375 | % | 08/01/39 | 215 | 227,105 | |||||||||||
5,914,624 | ||||||||||||||||
Virgin Islands–(1.3%) | ||||||||||||||||
Virgin Islands Public Finance Authority, Matching Fund Loan Diago A | 6.625 | % | 10/01/29 | 345 | 391,140 | |||||||||||
Virgin Islands Public Finance Authority, Matching Fund Loan Note-Senior Lien A | 5.00 | % | 10/01/29 | 500 | 516,380 | |||||||||||
907,520 | ||||||||||||||||
TOTAL INVESTMENTS–106.6% (Cost $72,170,313) | 76,981,519 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–0.4% | 316,396 | |||||||||||||||
Floating Rate Note and Dealer Trusts Obligations Related to Securities Held–(7.0) | ||||||||||||||||
Notes with interest rates of 0.31% at 08/31/10 and contractual maturities of collateral ranging from 05/01/28 to 06/15/38 (See Note 1I)(j) | (5,065,000 | ) | ||||||||||||||
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS–100.0% | $ | 72,232,915 | ||||||||||||||
Investment Abbreviations:
ACA | – ACA Financial Guaranty Corp. | |
AGC | – Assured Guaranty Corp. | |
AGM | – Assured Guaranty Municipal Corp. | |
AMBAC | – AMBAC Assurance Corp. | |
AMT | – Alternative Minimum Tax | |
BHAC | – Berkshire Hathaway Assurance Corp. | |
CIFG | – CIFG Assurance North America, Inc. | |
CR | – Custodial Receipts | |
ETM | – Escrowed to Maturity | |
FGIC | – Financial Guaranty Insurance Co. | |
FHA | – Federal Housing Administration | |
NATL-RE | – National Public Finance Guarantee Corp. |
Notes to Schedule of Investments:
(a) | Principal and/or interest payments are secured by the bond insurance company listed. | |
(b) | Capital appreciation bond. | |
(c) | Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on August 31, 2010. | |
(d) | Security is considered a cash equivalent. | |
(e) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. | |
(f) | Underlying security related to Special Purpose Trusts entered into by the Fund (See Note 1I). | |
(g) | Current coupon rate for inverse floating rate municipal obligations (See Note 9). This rate resets periodically as the auction rate on the related security changes. Positions in inverse floating rate municipal obligations have a total value of $702,968 which represents 1.0% of net assets applicable to common shareholders. | |
(h) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at August 31, 2010 was $354,564 which represented 0.5% of the Fund’s Net Assets. | |
(i) | Advance refunded; secured by an escrow fund of U.S. Government obligations or other highly rated collateral. | |
(j) | Floating rate note obligations related to securities held. The interest rates shown reflect the rates in effect at August 31, 2010. At August 31, 2010, the Fund’s investments with a value of $8,238,405 are held by the Dealer Trusts and serve as collateral for the $5,065,000 in floating rate note and dealer trust obligations outstanding at that date. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco New York Tax-Free Income Fund
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $72,170,313) | $ | 76,981,519 | ||
Receivable for: | ||||
Fund shares sold | 31,079 | |||
Interest | 781,700 | |||
Fund expenses absorbed | 7,584 | |||
Other Assets | 5,565 | |||
Total assets | 77,807,447 | |||
Liabilities: | ||||
Floating rate note and dealer trusts obligations | 5,065,000 | |||
Payable for: | ||||
Fund shares reacquired | 105,586 | |||
Amount due to custodian | 265,946 | |||
Dividends | 6,820 | |||
Accrued fees to affiliates | 25,918 | |||
Accrued other operating expenses | 39,688 | |||
Trustee deferred compensation and retirement plans | 65,574 | |||
Total liabilities | 5,574,532 | |||
Net assets applicable to shares outstanding | $ | 72,232,915 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 68,120,430 | ||
Undistributed net investment income | 240,927 | |||
Undistributed net realized gain (loss) | (939,648 | ) | ||
Unrealized appreciation | 4,811,206 | |||
$ | 72,232,915 | |||
Net Assets: | ||||
Class A | $ | 46,528,379 | ||
Class B | $ | 14,952,387 | ||
Class C | $ | 3,808,569 | ||
Class Y | $ | 6,943,580 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 4,149,865 | |||
Class B | 1,342,776 | |||
Class C | 342,497 | |||
Class Y | 626,115 | |||
Class A: | ||||
Net asset value per share | $ | 11.21 | ||
Maximum offering price per share, (Net asset value of $11.21 divided by 94.50%) | $ | 11.86 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 11.14 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 11.12 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 11.09 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco New York Tax-Free Income Fund
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Statement of Operations
For the period January 1, 2010 through August 31, 2010 and the year ended December 31, 2009
Eight months ended | Year ended | |||||||
August 31, | December 31, | |||||||
2010 | 2009 | |||||||
Investment income: | ||||||||
Interest | $ | 2,506,944 | $ | 3,861,491 | ||||
Expenses | ||||||||
Advisory fees | 217,704 | 324,540 | ||||||
Administrative services fees | 35,507 | 55,241 | ||||||
Custodian fees | 2,038 | 2,163 | ||||||
Distribution fees: | ||||||||
Class A | 76,708 | 111,849 | ||||||
Class B | 33,897 | 57,069 | ||||||
Class C | 16,000 | 23,472 | ||||||
Transfer agent fees | 19,750 | 29,814 | ||||||
Trustees’ and officers’ fees and benefits | 17,623 | 8,662 | ||||||
Professional fees | 43,126 | 101,626 | ||||||
Reports to shareholder fees | 27,475 | 42,341 | ||||||
Interest and residual trust expenses | 31,889 | 12,104 | ||||||
Other | 17,213 | 30,996 | ||||||
Total expenses | 538,930 | 799,877 | ||||||
Less: Fees waived | (78,878 | ) | (167,803 | ) | ||||
Net expenses | 460,052 | 632,074 | ||||||
Net investment income | 2,046,892 | 3,229,417 | ||||||
Realized and unrealized gain (loss): | ||||||||
Investment securities | 366,947 | (1,208,689 | ) | |||||
Futures contracts | — | 252,326 | ||||||
366,947 | (956,363 | ) | ||||||
Change in unrealized appreciation (depreciation) on: | ||||||||
Investment securities | 2,704,990 | 8,273,640 | ||||||
Futures contracts | — | (389,001 | ) | |||||
2,704,990 | 7,884,639 | |||||||
Net realized and unrealized gain | �� | 3,071,937 | 6,928,276 | |||||
Net increase in net assets resulting from operations | $ | 5,118,829 | $ | 10,157,693 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco New York Tax-Free Income Fund
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Statements of Changes in Net Assets
For the period ended January 1, 2010 through August 31, 2010 and the years ended December 31, 2009 and 2008, respectively.
Eight Months Ended | Year ended | Year ended | ||||||||||
August 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Operations: | ||||||||||||
Net investment income | $ | 2,046,892 | $ | 3,229,417 | $ | 3,461,845 | ||||||
Net realized gain (loss) | 366,947 | (956,363 | ) | 1,788,426 | ||||||||
Change in net unrealized appreciation (depreciation) | 2,704,990 | 7,884,639 | (8,753,239 | ) | ||||||||
Net increase (decrease) in net assets resulting from operations | 5,118,829 | 10,157,693 | (3,502,968 | ) | ||||||||
Distributions to shareholders from net investment income: | ||||||||||||
Class A shares | (1,348,666 | ) | (2,069,014 | ) | (2,147,722 | ) | ||||||
Class B shares | (399,841 | ) | (691,933 | ) | (726,603 | ) | ||||||
Class C shares | (82,371 | ) | (128,410 | ) | (113,961 | ) | ||||||
Class Y shares | (186,410 | ) | (305,375 | ) | (449,044 | ) | ||||||
Total Dividends | (2,017,288 | ) | (3,194,732 | ) | (3,437,330 | ) | ||||||
Distributions to shareholders from net realized gains: | ||||||||||||
Class A shares | — | (999,885 | ) | (562,640 | ) | |||||||
Class B shares | — | (334,293 | ) | (189,157 | ) | |||||||
Class C shares | — | (72,059 | ) | (33,640 | ) | |||||||
Class Y shares | — | (139,005 | ) | (97,233 | ) | |||||||
Total Distributions from net realized gains | — | (1,545,242 | ) | (882,670 | ) | |||||||
Net increase (decrease) from in net assets resulting from share transactions | (1,215,025 | ) | (1,870,657 | ) | (4,956,603 | ) | ||||||
Net increase (decrease) in net assets | 1,886,516 | 3,547,062 | (12,779,571 | ) | ||||||||
Net Assets: | ||||||||||||
Beginning of year | 70,346,399 | 66,799,337 | 79,578,908 | |||||||||
End of year (Includes undistributed net investment income of $240,927, $212,455 and $191,563, respectively) | $ | 72,232,915 | $ | 70,346,399 | $ | 66,799,337 | ||||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco New York Tax-Free Income Fund (the “Fund”), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
On August 31, 2010, the Fund’s fiscal year-end changed from December 31 to August 31.
Prior to June 1, 2010, the Fund operated as Morgan Stanley New York Tax-Free Income Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010, (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is to provide as high a level of current income exempt from federal and California income tax, as is consistent with the preservation of capital.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
14 Invesco New York Tax-Free Income Fund
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A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Securities are fair valued using an evaluated quote provided by an independent pricing service approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Securities with a demand feature exercisable within one to seven days are valued at par. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and principal payments. | ||
Securities for which market quotations either are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Some of the factors which may be considered in determining fair value are fundamental analytical data relating to the investment; the nature and duration of any restrictions on transferability or disposition; trading in similar securities by the same issuer or comparable companies; relevant political, economic or issuer specific news; and other relevant factors under the circumstances. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable and tax-exempt earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
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I. | Floating Rate Obligations Related to Securities Held — The Fund enters into transactions in which it transfers to Special Purpose Trusts established by a Broker Dealer (“Dealer Trusts”) fixed rate bonds in exchange for cash and residual interests in the Dealer Trusts’ assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interest in the bonds. The Fund may enter into shortfall agreements with the Dealer Trusts which commit the Fund to pay the Dealer Trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the Dealer Trusts to the Fund, thereby collapsing the Dealer Trusts. The Fund accounts for the transfer of bonds to the Dealer Trusts as secured borrowings, with the securities transferred remaining in the Fund’s investment assets, and the related floating rate notes reflected as Fund liabilities under the caption “Floating rate note and dealer trust obligations” on the Statement of Assets and Liabilities. The Fund records the interest income from the fixed rate bonds under the caption “Interest” and records the expenses related to floating rate obligations and any administrative expenses of the Dealer Trusts under the caption “Interest and residual trust expenses” on the Statement of Operations. The floating rate notes issued by the Dealer Trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the Dealer Trusts for redemption at par at each reset date. The average floating rate notes outstanding and average annual interest and fee rate related to residual interests during the eight months ended August 31, 2010 were $4,993,333 and 0.96%, respectively. | |
J. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
K. | Other Risks — The value of, payment of interest on, repayment of principal for and the ability to sell a municipal security may be affected by constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives and the economics of the regions in which the issuers are located. | |
Since, many municipal securities are issued to finance similar projects, especially those relating to education, health care, transportation and utilities, conditions in those sectors can affect the overall municipal securities market and a Fund’s investments in municipal securities. | ||
There is some risk that a portion or all of the interest received from certain tax-free municipal securities could become taxable as a result of determinations by the Internal Revenue Service. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets.
Average Net Assets | Rate | |||
First $500 million | 0 | .47% | ||
Over $500 million | 0 | .445% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $135,466 to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of the Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through June 30, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding certain items discussed below) of Class A, Class B, Class C and Class Y shares to 0.90%, 1.40%, 1.40% and 0.65% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay
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because of an expense offset arrangement. Unless the Board of Trustees and the Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Prior to the Reorganization, MSIA and Morgan Stanley Services Company Inc. (“MSSC”) had voluntarily agreed to cap the Acquired Fund’s operating expenses at 0.65% of the average daily net assets of the Acquired Fund.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For period January 1, 2010 to August 31, 2010, the Adviser and MSIA waived advisory fees of $29,770 and $49,108, respectively. For the year ended December 31, 2009, MSIA waived advisory fees of $146,552.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, the Acquired Fund paid an administration fee of $22,904 to MSSC. For the period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees.
Also, the Trust has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $11,653 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”), an affiliate of the Adviser. The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will reimburse IDI for distribution related expenses that IDI incurs up to a maximum of the following annual rates; (1) Class A — up to 0.25% of the average daily net assets of Class A shares; (2) Class B — up to 1.00% of the average daily net assets of Class B shares and (3) Class C — up to 1.00% of the average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by IDI, but not yet reimbursed to IDI may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Morgan Stanley Distributors Inc. (“MSDI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, for the period January 1, 2010 to August 31, 2010 the Acquired Fund paid $14,447 to MSDI.
For the period January 1, 2010 to August 31, 2010 and the year ended December 31, 2009, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees. For the year ended December 31, 2009, MSDI waived $21,251.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $901 in front-end sales commissions from the sale of Class A shares and $5, $418 and $0 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period January 1 to May 31, 2010, MSDI retained $4,825 in front-end sales commissions from the sale of Class A shares and $58, $254 and $2,696 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the year ended December 31, 2009, MSDI retained $19,797 in front-end sales commissions from the sale of Class A shares and $94, $5,033 and $56 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
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The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Municipal Obligations | $ | — | $ | 76,981,519 | $ | — | $ | 76,981,519 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Period Ended August 31, 2010 and Years Ended December 31, 2009 and 2008:
August 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Tax-exempt income | $ | 2,017,288 | $ | 3,194,706 | $ | 3,436,931 | ||||||
Ordinary income | — | 617,351 | 35,803 | |||||||||
Long-term capital gain | — | 927,917 | 847,266 | |||||||||
Total distributions | $ | 2,017,288 | $ | 4,739,974 | $ | 4,320,000 | ||||||
Tax Components of Net Assets at Period-End:
August 31, | ||||
2010 | ||||
Undistributed tax-exempt income | $ | 87,745 | ||
Net unrealized appreciation — investments | 5,044,874 | |||
Temporary book/tax differences | (65,575 | ) | ||
Capital loss carryforward | (954,559 | ) | ||
Shares of beneficial interest | 68,120,430 | |||
Total net assets | $ | 72,232,915 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to bond premium amortization and tender option bonds.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $231,342 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2017 | $ | 954,559 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
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NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the period ended August 31, 2010 was $12,754,345 and $15,256,672, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 5,819,986 | ||
Aggregate unrealized (depreciation) of investment securities | (775,112 | ) | ||
Net unrealized appreciation of investment securities | $ | 5,044,874 | ||
Cost of investments for tax purposes is $71,936,645. |
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of bond premium amortization on August 31, 2010, undistributed net investment income was decreased by $1,132 and undistributed net realized gain (loss) was increased by $1,132. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||||||||||
Eight months ended | Year ended | Year ended | ||||||||||||||||||||||
August 31, 2010(a) | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Sold | 720,511 | $ | 7,840,290 | 109,018 | $ | 1,153,786 | 186,121 | $ | 2,035,163 | |||||||||||||||
Reinvestment of dividends and distributions | 110,526 | 1,198,724 | 279,522 | 2,897,033 | 242,197 | 2,524,353 | ||||||||||||||||||
Redeemed | (950,248 | ) | (10,394,840 | ) | (470,342 | ) | (4,909,047 | ) | (525,591 | ) | (5,551,683 | ) | ||||||||||||
Net increase (decrease) | (119,211 | ) | (1,355,826 | ) | (81,802 | ) | (858,228 | ) | (97,273 | ) | (992,167 | ) | ||||||||||||
Class B | ||||||||||||||||||||||||
Sold | 665,555 | 7,245,923 | 104,467 | 1,087,201 | 113,003 | 1,167,995 | ||||||||||||||||||
Reinvestment of dividends and distributions | 31,379 | 337,366 | 92,244 | 949,194 | 78,843 | 816,229 | ||||||||||||||||||
Redeemed | (759,706 | ) | (8,197,338 | ) | (249,422 | ) | (2,589,834 | ) | (325,269 | ) | (3,410,069 | ) | ||||||||||||
Net increase (decrease) | (62,772 | ) | (614,049 | ) | (52,711 | ) | (553,439 | ) | (133,423 | ) | (1,425,845 | ) | ||||||||||||
Class C | ||||||||||||||||||||||||
Sold | 77,020 | 836,095 | 60,818 | 625,415 | 13,198 | 140,328 | ||||||||||||||||||
Reinvestment of dividends and distributions | 6,819 | 73,317 | 18,265 | 187,685 | 11,658 | 120,716 | ||||||||||||||||||
Redeemed | (52,507 | ) | (564,116 | ) | (24,224 | ) | (252,825 | ) | (31,379 | ) | (312,781 | ) | ||||||||||||
Net increase (decrease) | 31,332 | 345,296 | 54,859 | 560,275 | (6,523 | ) | (51,737 | ) | ||||||||||||||||
Class Y | ||||||||||||||||||||||||
Sold | 113,389 | 1,243,241 | 27,511 | 284,961 | 15,372 | 165,878 | ||||||||||||||||||
Reinvestment of dividends and distributions | 14,831 | 159,082 | 37,684 | 386,211 | 49,704 | 514,638 | ||||||||||||||||||
Redeemed | (92,217 | ) | (992,769 | ) | (164,291 | ) | (1,690,437 | ) | (313,472 | ) | (3,167,370 | ) | ||||||||||||
Net increase (decrease) | 36,003 | 409,554 | (99,096 | ) | (1,019,265 | ) | (248,396 | ) | (2,486,854 | ) | ||||||||||||||
Net increase (decrease) in share activity | (114,648 | ) | $ | (1,215,025 | ) | (178,750 | ) | $ | (1,870,657 | ) | (485,615 | ) | $ | (4,956,603 | ) | |||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 81% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 10—Purposes and Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in inverse floating rate municipal securities, which are variable debt instruments that pay interest at rates that move in the opposite direction of prevailing interest rates. These investments are typically used by the Fund in seeking to enhance the yield of the portfolio. Inverse floating rate investments tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline or remain relatively stable. Inverse floating rate investments have varying degrees of liquidity. Inverse floating rate securities in which the Fund may invest include derivative instruments such as residual interest bonds (“RIBs”) or tender option bonds (“TOBs”). Such instruments are typically created by a special purpose trust that holds long-term fixed rate bonds (which may be tendered by the Fund in certain instances) and sells two classes of beneficial interests: short-term floating rate interests, which are sold to third party investors, and inverse floating residual interests, which are purchased by the Fund. The short-term floating rate interests have first priority on the cash flow from the bonds held by the special purpose trust and the Fund is paid the residual cash flow from the bonds held by the special purpose trust.
The Fund generally invests in inverse floating rate investments that include embedded leverage, thus exposing the Fund to greater risks and increased costs. The market value of a “leveraged” inverse floating rate investment generally will fluctuate in response to changes in market rates of interest to a greater extent than the value of an unleveraged investment. The extent of increases and decreases in the value of inverse floating rate investments generally will be larger than changes in an equal principal amount of a fixed rate security having similar credit quality, redemption provisions and maturity, which may cause the Fund’s net asset value to be more volatile than if it had not invested in inverse floating rate investments.
In certain instances, the short-term floating rate interests created by the special purpose trust may not be able to be sold to third parties or, in the case of holders tendering (or putting) such interests for repayment of principal, may not be able to be remarketed to third parties. In such cases, the special purpose trust holding the long-term fixed rate bonds may be collapsed. In the case of RIBs or TOBs created by the contribution of long-term fixed income bonds by the Fund, the Fund will then be required to repay the principal amount of the tendered securities. During times of market volatility, illiquidity or uncertainty, the Fund could be required to sell other portfolio holdings at a disadvantageous time to raise cash to meet that obligation.
The Fund may also invest in private placement securities. TOBs are presently classified as private placement securities. Private placement securities are subject to restrictions on resale because they have not been registered under the Securities Act of 1933, as amended or are otherwise not readily marketable. As a result of the absence of a public trading market for these securities, they may be less liquid than publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those originally paid by the Fund or less than what may be considered the fair value of such securities.
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NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Class A | ||||||||||||||||||||||||
Eight months ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.73 | $ | 9.92 | $ | 11.03 | $ | 11.29 | $ | 11.31 | $ | 11.67 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.32 | 0.49 | 0.49 | 0.50 | 0.49 | 0.52 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.48 | 1.04 | (0.99 | ) | (0.26 | ) | 0.03 | (0.17 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.80 | 1.53 | (0.50 | ) | 0.24 | 0.52 | 0.35 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.32 | ) | (0.48 | ) | (0.48 | ) | (0.49 | ) | (0.48 | ) | (0.51 | ) | ||||||||||||
Net realized gain | — | (0.24 | ) | (0.13 | ) | (0.01 | ) | (0.06 | ) | (0.20 | ) | |||||||||||||
Total dividends and distributions | (0.32 | ) | (0.72 | ) | (0.61 | ) | (0.50 | ) | (0.54 | ) | (0.71 | ) | ||||||||||||
Net asset value, end of period | $ | 11.21 | $ | 10.73 | $ | 9.92 | $ | 11.03 | $ | 11.29 | $ | 11.31 | ||||||||||||
Total return(a) | 7.55 | % | 15.91 | % | (4.63 | )% | 2.33 | % | 4.63 | % | 3.10 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 46,528 | $ | 45,803 | $ | 43,152 | $ | 49,048 | $ | 57,776 | $ | 63,437 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.97 | %(b) | 0.92 | % | 0.91 | % | 1.00 | % | 0.91 | % | 0.90 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.14 | %(b) | 1.13 | % | 1.06 | % | 1.16 | % | 1.03 | % | 1.00 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 0.90 | %(b) | 0.90 | % | 0.91 | % | 0.90 | % | 0.91 | % | 0.90 | % | ||||||||||||
Net investment income | 4.44 | %(b) | 4.67 | % | 4.58 | % | 4.49 | % | 4.32 | % | 4.37 | % | ||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 19 | % | 41 | % | 9 | % | 4 | % | 12 | % | 15 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $46,088. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 11—Financial Highlights—(continued)
Class B | ||||||||||||||||||||||||
Eight months ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.65 | $ | 9.85 | $ | 10.95 | $ | 11.21 | $ | 11.24 | $ | 11.59 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.31 | 0.49 | 0.49 | 0.51 | 0.51 | 0.48 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.48 | 1.03 | (0.98 | ) | (0.26 | ) | 0.02 | (0.15 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.79 | 1.52 | (0.49 | ) | 0.25 | 0.53 | 0.33 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.30 | ) | (0.48 | ) | (0.48 | ) | (0.50 | ) | (0.50 | ) | (0.48 | ) | ||||||||||||
Net realized gain | — | (0.24 | ) | (0.13 | ) | (0.01 | ) | (0.06 | ) | (0.20 | ) | |||||||||||||
Total dividends and distributions | (0.30 | ) | (0.72 | ) | (0.61 | ) | (0.51 | ) | (0.56 | ) | (0.68 | ) | ||||||||||||
Net asset value, end of period | $ | 11.14 | $ | 10.65 | $ | 9.85 | $ | 10.95 | $ | 11.21 | $ | 11.24 | ||||||||||||
Total return(a) | 7.55 | % | 15.90 | % | (4.60 | )% | 2.36 | % | 4.84 | % | 2.93 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 14,952 | $ | 14,970 | $ | 14,360 | $ | 17,424 | $ | 22,629 | $ | 26,952 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.08 | %(b) | 0.91 | % | 0.90 | % | 0.87 | % | 0.72 | % | 1.21 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.25 | %(b) | 1.26 | % | 1.05 | % | 1.03 | % | 0.84 | % | 1.31 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 1.01 | %(b) | 0.89 | % | 0.90 | % | 0.77 | % | 0.72 | % | 1.21 | % | ||||||||||||
Net investment income | 4.33 | %(b) | 4.68 | % | 4.59 | % | 4.62 | % | 4.51 | % | 4.06 | % | ||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 19 | % | 41 | % | 9 | % | 4 | % | 12 | % | 15 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $14,223. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 11—Financial Highlights—(continued)
Class C | ||||||||||||||||||||||||
Eight months ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.64 | $ | 9.86 | $ | 10.96 | $ | 11.22 | $ | 11.25 | $ | 11.60 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.28 | 0.43 | 0.43 | 0.44 | 0.43 | 0.45 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.48 | 1.02 | (0.97 | ) | (0.26 | ) | 0.03 | (0.16 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.76 | 1.45 | (0.54 | ) | 0.18 | 0.46 | 0.29 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.28 | ) | (0.43 | ) | (0.43 | ) | (0.43 | ) | (0.43 | ) | (0.44 | ) | ||||||||||||
Net realized gain | — | (0.24 | ) | (0.13 | ) | (0.01 | ) | (0.06 | ) | (0.20 | ) | |||||||||||||
Total dividends and distributions | (0.28 | ) | (0.67 | ) | (0.56 | ) | (0.44 | ) | (0.49 | ) | (0.64 | ) | ||||||||||||
Net asset value, end of period | $ | 11.12 | $ | 10.64 | $ | 9.86 | $ | 10.96 | $ | 11.22 | $ | 11.25 | ||||||||||||
Total return(a) | 7.23 | % | 15.09 | % | (5.07 | )% | 1.80 | % | 4.11 | % | 2.51 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 3,809 | $ | 3,311 | $ | 2,526 | $ | 2,881 | $ | 2,832 | $ | 4,152 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.47 | %(b) | 1.42 | % | 1.41 | % | 1.51 | % | 1.41 | % | 1.41 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.64 | %(b) | 1.63 | % | 1.56 | % | 1.67 | % | 1.53 | % | 1.51 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 1.40 | %(b) | 1.40 | % | 1.41 | % | 1.41 | % | 1.41 | % | 1.41 | % | ||||||||||||
Net investment income | 3.94 | %(b) | 4.17 | % | 4.08 | % | 3.98 | % | 3.82 | % | 3.86 | % | ||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 19 | % | 41 | % | 9 | % | 4 | % | 12 | % | 15 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $3,204. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 11—Financial Highlights—(continued)
Class Y | ||||||||||||||||||||||||
Eight months ended | ||||||||||||||||||||||||
August 31, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.61 | $ | 9.81 | $ | 10.91 | $ | 11.16 | $ | 11.19 | $ | 11.55 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.34 | 0.51 | 0.51 | 0.52 | 0.51 | 0.53 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.47 | 1.03 | (0.97 | ) | (0.25 | ) | 0.03 | (0.16 | ) | |||||||||||||||
Total income (loss) from investment operations | 0.81 | 1.54 | (0.46 | ) | 0.27 | 0.54 | 0.37 | |||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.33 | ) | (0.50 | ) | (0.51 | ) | (0.51 | ) | (0.51 | ) | (0.53 | ) | ||||||||||||
Net realized gain | — | (0.24 | ) | (0.13 | ) | (0.01 | ) | (0.06 | ) | (0.20 | ) | |||||||||||||
Total dividends and distributions | (0.33 | ) | (0.74 | ) | (0.64 | ) | (0.52 | ) | (0.57 | ) | (0.73 | ) | ||||||||||||
Net asset value, end of period | $ | 11.09 | $ | 10.61 | $ | 9.81 | $ | 10.91 | $ | 11.16 | $ | 11.19 | ||||||||||||
Total return(a) | 7.78 | % | 16.22 | % | (4.40 | )% | 2.56 | % | 4.89 | % | 3.27 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 6,944 | $ | 6,262 | $ | 6,761 | $ | 10,226 | $ | 10,824 | $ | 9,483 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.72 | %(b) | 0.67 | % | 0.66 | % | 0.76 | % | 0.66 | % | 0.66 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.89 | %(b) | 0.88 | % | 0.81 | % | 0.92 | % | 0.78 | % | 0.76 | % | ||||||||||||
With fee waivers and/or expense reimbursements, exclusive of interest and residual trust expense | 0.65 | %(b) | 0.65 | % | 0.66 | % | 0.66 | % | 0.66 | % | 0.66 | % | ||||||||||||
Net investment income | 4.69 | %(b) | 4.92 | % | 4.83 | % | 4.73 | % | 4.57 | % | 4.61 | % | ||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(c) | 19 | % | 41 | % | 9 | % | 4 | % | 12 | % | 15 | % | ||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
(b) | Ratios are annualized and based on average daily net assets (000’s omitted) of $6,060. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 12—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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NOTE 11—Financial Highlights—(continued)
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco New York Tax-Free Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco New York Tax-Free Income Fund (formerly known as Morgan Stanley New York Tax-Free Income Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of operations, the statement of changes in net assets and the financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by other independent auditors whose report dated February 25, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
25 Invesco New York Tax-Free Income Fund
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 1, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 1,058.00 | $ | 4.67 | $ | 1,020.67 | $ | 4.58 | 0.90 | % | ||||||||||||||||||
B | 1,000.00 | 1,057.90 | 5.45 | 1,019.91 | 5.35 | 1.05 | ||||||||||||||||||||||||
C | 1,000.00 | 1,055.60 | 7.25 | 1,018.15 | 7.12 | 1.40 | ||||||||||||||||||||||||
Y | 1,000.00 | 1,059.70 | 3.37 | 1,021.93 | 3.31 | 0.65 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
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Approval of Investment Advisory and Sub-Advisory Agreements with Invesco Advisers, Inc. and Its Affiliates
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco New York Tax-Free Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco
27 Invesco New York Tax-Free Income Fund
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Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
28 Invesco New York Tax-Free Income Fund
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its eight months ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 0% | |||
Corporate Dividends Received Deduction* | 0% | |||
U.S. Treasury Obligations* | 0% | |||
Tax-Exempt Interest Dividends* | 100% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the eight months ended August 31, 2010. |
29 Invesco New York Tax-Free Income Fund
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-4
Table of Contents
Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
MS-NYTFI-AR-1 | Invesco Distributors, Inc. |
Table of Contents
Annual Report to Shareholders | August 31, 2010 |
Invesco S&P 500 Index Fund
2 | Letters to Shareholders | |
4 | Performance Summary | |
4 | Management Discussion | |
6 | Long-Term Fund Performance | |
8 | Supplemental Information | |
9 | Schedule of Investments | |
19 | Financial Statements | |
21 | Notes to Financial Statements | |
28 | Financial Highlights | |
32 | Auditor's Report | |
33 | Fund Expenses | |
34 | Approval of Investment Advisory and Sub-Advisory Agreements | |
36 | Tax Information | |
37 | Results of Proxy | |
T-1 | Trustees and Officers |
Table of Contents
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the period covered by this report. Whether you’re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, I’m glad you’re part of the Invesco family.
Near the end of this letter, I’ve provided the number to call if you have specific questions about your account; I’ve also provided my email address so you can send a general Invesco-related question or comment to me directly.
The benefits of Invesco
As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs.
First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles.
Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes.
And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that’s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives.
Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs.
Our customer focus
Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change.
If you have questions about your account, please contact one of our client services representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, please email me directly at phil@invesco.com.
I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco
Senior Managing Director, Invesco
2 | Invesco S&P 500 Index Fund |
Table of Contents
Bruce Crockett
Dear Fellow Shareholders:
Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it’s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you’ve made the right choice.
To that end, I’m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. This acquisition greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money.
We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term.
It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained.
As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
3 | Invesco S&P 500 Index Fund |
Table of Contents
Management’s Discussion of Fund Performance
Performance summary
As part of Invesco’s June 1, 2010, acquisition of Morgan Stanley’s retail asset management business, Morgan Stanley S&P 500 Index Fund was reorganized into Invesco S&P 500 Index Fund. Effective June 25, 2010, Glen Murphy, Daniel Tsai, and Anne Unflat managed the Fund. Effective August 20, 2010, Anthony Munchak and Francis Orlando were added to the team. A listing of your Fund’s managers appears later in this report.
For the fiscal year ended August 31, 2010, Class A shares of Invesco S&P 500 Index Fund at net asset value (NAV) performed in line with the S&P 500 Index and the Lipper S&P 500 Index Objective Funds Index. The Fund seeks to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the S&P 500 Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance.
Class A Shares | 4.45 | % | ||
Class B Shares | 3.68 | |||
Class C Shares | 3.71 | |||
Class Y Shares | 4.72 | |||
S&P 500 Index▼ (Broad Market/Style-Specific Index) | 4.93 | |||
Lipper S&P 500 Objective Funds Index▼ (Peer Group Index) | 4.67 | |||
▼ | Lipper Inc. |
How we invest
The Fund will normally invest at least 80 percent of its assets in common stocks of companies included in the S&P 500 Index. The Fund’s assets are managed by investing in stocks in approximately the same proportion as they are represented in the S&P 500 Index. For example, if the common stock of a specific company represents five percent of the S&P 500 Index, the Fund typically will invest the same percentage of the Fund’s assets in that stock. The S&P 500 Index is a well known stock market index that includes common stocks of 500 companies representing a significant portion of the market value of all common stocks publicly traded in the United States. The Fund may invest in foreign companies, including those that are in
emerging market countries, that are included in the S&P 500 Index. Buy and sell decisions for the Fund are a function of changes in the S&P 500 Index rather than independent decisions made by the investment team.
Market conditions and your Fund
Over the past year investors have been optimistic about the prospect of an improving economy given accommodative monetary policy, fiscal stimulus and increased strength in the manufacturing sector. Sentiment turned pessimistic when there was little good news to counter the seeds of economic troubles planted in the first quarter of 2010 that were already weighing heavily on the market. Within the U.S., waning consumer confidence, worsening
employment outlook and continued pressures in the financial sector confirmed to most that economic growth was stalling. Internationally, concerns sprang from news of slowing economic growth in China and ongoing concerns about debt burdens in the southern eurozone, despite support from their northern peers. With little good news to support the market, steady gains became steep losses.
At the beginning of the 12-month period covered by this report, riskier assets were outperforming securities considered safe havens, like U.S. Treasury securities. This trend continued through the middle of April 2010. However, renewed credit problems overseas and the market corrections that occurred in May, June and August created a more uncertain environment, which prompted many investors to favor safety over risk.
The Fund stayed true to its process by maintaining the same proportion to all constituents of the S&P 500 Index as the index itself. On an absolute basis, all sectors in the Fund, except financials, posted positive returns during the fiscal year. The sectors that contributed most to overall Fund performance were the consumer discretionary, consumer staples, information technology and industrial sectors. The financials sector was the primary detractor at the sector level.
Within the consumer discretionary sector, Procter & Gamble, Coca-Cola and McDonalds were top contributors. Procter & Gamble is focused on providing consumer packaged goods. The company’s products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores and neighborhood stores, which serve many
Portfolio Composition
By sector
Information Technology | 18.1 | % | ||
Financials | 15.8 | |||
Consumer Staples | 11.7 | |||
Health Care | 11.6 | |||
Energy | 10.8 | |||
Industrials | 10.5 | |||
Consumer Discretionary | 10.2 | |||
Utilities | 3.8 | |||
Materials | 3.6 | |||
Telecommunication Services | 3.2 | |||
Money Market Funds | ||||
Plus Other Assets Less Liabilities | 0.7 |
Top 10 Equity Holdings*
1. | Exxon Mobil Corp. | 3.2 | % | |||||
2. | Apple, Inc. | 2.3 | ||||||
3. | Microsoft Corp. | 1.9 | ||||||
4. | Procter & Gamble Co. (The) | 1.8 | ||||||
5. | AT&T, Inc. | 1.7 | ||||||
6. | International Business Machines Corp. | 1.6 | ||||||
7. | Johnson & Johnson | 1.6 | ||||||
8. | General Electric Co. | 1.6 | ||||||
9. | Chevron Corp. | 1.6 | ||||||
10. | JPMorgan Chase & Co. | 1.5 |
Total Net Assets | $489.8 million | |||
Total Number of Holdings* | 500 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco S&P 500 Index Fund |
Table of Contents
consumers in developing markets. Sales to Wal-Mart and its affiliates represented approximately 16% of Procter & Gamble’s total revenue for the year ended June 30, 2010. In October 2009, Warner Chilcott (not a fund holding) completed the acquisition of Procter & Gamble’s global branded prescription pharmaceutical business. In July 2010, Sara Lee completed the sale of its air care business to Procter & Gamble.
Detracting from performance were several financial sector companies, including Wells Fargo, JP Morgan Chase and Bank of America.
As part of implementing the Fund’s strategy, the Fund may use derivatives, such as futures contracts to better manage our market exposure. The use of derivatives during the period was successful.
While the global economy appeared more stable entering 2010 than it did the prior year, forecasting the future direction of the economy remained highly challenging. The bursting of the U.S. housing bubble, rising unemployment and rising taxation could impede future economic growth, while massive fiscal and monetary stimulus could promote economic growth.
During the fiscal year, we were cautiously optimistic about the prospects for equities. In a world of moderate but positive economic growth, low inflation and prolonged government liquidity support, we believe equities can achieve gains. Further, valuations remained reasonable by historic standards, especially after the pullback during the second quarter of 2010.
We welcome new investors who joined the Fund during the fiscal year and would like to thank all of our shareholders for your investment in Invesco S&P 500 Index Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
Anthony Munchak
Chartered Financial Analyst, portfolio manager, is manager of Invesco S&P 500 Index Fund. He joined Invesco in 2000. Mr. Munchak earned a B.S. and M.S. in finance from Boston College and an M.B.A. from Bentley College.
Glen Murphy
Chartered Financial Analyst, portfolio manager, is manager of Invesco S&P 500 Index Fund. He joined Invesco in 1995. Mr. Murphy earned a B.B.A. from the University of Massachusetts and an M.S. in finance from Boston College.
Francis Orlando
Chartered Financial Analyst, portfolio manager, is manager of Invesco S&P 500 Index Fund. He joined Invesco in 1987. Mr. Orlando earned a B.A. in business administration from Merrimack College and an M.B.A. from Boston University.
Daniel Tsai
Chartered Financial Analyst, portfolio manager, is manager of Invesco S&P 500 Index Fund. He joined Invesco in 2000. Mr. Tsai earned a B.S. in mechanical engineering from National Taiwan University and an M.S. in mechanical engineering from the University of Michigan. He also earned an M.S. in computer science from Wayne State University.
Anne Unflat
Portfolio manager, is manager of Invesco S&P 500 Index Fund. She joined Invesco in 1988. Ms. Unflat graduated magna cum laude from Queens College with a B.A. in economics. She earned an M.B.A. in finance from St. John’s University.
5 | Invesco S&P 500 Index Fund |
Table of Contents
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes Since Inception
Fund data from 9/26/97, index data from 9/30/97
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the Fund at the close of the reporting period and paid the applicable contingent deferred sales charges. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment
representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
6 | Invesco S&P 500 Index Fund |
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Average Annual Total Returns
As of 8/31/10, including maximum applicable sales charges
Class A Shares | ||||||||
Inception (9/26/97) | 1.55 | % | ||||||
10 | Years | -2.90 | ||||||
5 | Years | -2.45 | ||||||
1 | Year | -1.34 | ||||||
Class B Shares | ||||||||
Inception (9/26/97) | 1.51 | % | ||||||
10 | Years | -2.95 | ||||||
5 | Years | -2.47 | ||||||
1 | Year | -1.32 | ||||||
Class C Shares | ||||||||
Inception (9/26/97) | 1.23 | % | ||||||
10 | Years | -3.08 | ||||||
5 | Years | -2.07 | ||||||
1 | Year | 2.71 | ||||||
Class Y Shares | ||||||||
Inception (9/26/97) | 2.23 | % | ||||||
10 | Years | -2.12 | ||||||
5 | Years | -1.10 | ||||||
1 | Year | 4.72 |
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco S&P 500 Index Fund. Returns shown above for Class A, Class B, Class C and Class Y shares are blended returns of the predecessor fund and Invesco S&P 500 Index Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
Average Annual Total Returns
As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges.
Class A Shares | ||||||||
Inception (9/26/97) | 1.40 | % | ||||||
10 | Years | -2.68 | ||||||
5 | Years | -2.34 | ||||||
1 | Year | 7.67 | ||||||
Class B Shares | ||||||||
Inception (9/26/97) | 1.37 | % | ||||||
10 | Years | -2.73 | ||||||
5 | Years | -2.35 | ||||||
1 | Year | 8.11 | ||||||
Class C Shares | ||||||||
Inception (9/26/97) | 1.09 | % | ||||||
10 | Years | -2.86 | ||||||
5 | Years | -1.96 | ||||||
1 | Year | 12.10 | ||||||
Class Y Shares | ||||||||
Inception (9/26/97) | 2.09 | % | ||||||
10 | Years | -1.90 | ||||||
5 | Years | -0.99 | ||||||
1 | Year | 14.15 |
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, and Class Y shares was 0.65%, 1.40%, 1.40% and 0.40%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, and Class Y shares was 0.70%, 1.45%, 1.45% and 0.45%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. 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 on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco S&P 500 Index Fund |
Table of Contents
Invesco S&P 500 Index Fund’s investment objective is to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the Standard & Poor’s 500 Composite Stock Price Index.
n | Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. | |
n | To access your Fund’s reports/prospectus visit invesco.com/fundreports. |
About share classes
n | Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. | |
n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
n | In general, prices of equity securities are more volatile than those of fixed income securities. Prices of equity securities will rise and fall in response to events that affect entire financial markets or industries and to events that affect particular issuers. Investing in convertible securities may subject the portfolio to the risks associated with both fixed income securities and common stocks. | |
n | The Fund is operated as a passively managed index fund. As such, the adverse performance of a particular stock ordinarily will not result in the elimination of the stock from the Fund’s portfolio. The Fund will remain invested in common stocks even when stock prices are generally falling. Ordinarily, the adviser will not sell the Fund’s portfolio securities except to reflect additions or deletions of the stocks that comprise the S&P 500 Index, or as may be necessary to raise cash to pay Fund shareholders who sell Fund shares. |
The Fund’s ability to correlate its performance, before expenses, with the S&P 500 Index may be affected by, among other things, changes in securities markets, the manner in which the S&P 500 Index is calculated and the timing of the purchases and sales, and also depends to some extent on the size of the Fund’s portfolio, the size of cash flows into and out of the Fund and differences between how and when the Fund and the index are valued. | ||
n | The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. |
About indexes used in this report
n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
n | The Lipper S&P 500 Objective Funds Index is an unmanaged index considered representative of S&P 500 objective funds tracked by Lipper. | |
n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
n | Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Nasdaq Symbols
Class A Shares | SPIAX | |||
Class B Shares | SPIBX | |||
Class C Shares | SPICX | |||
Class Y Shares | SPIDX |
8 | Invesco S&P 500 Index Fund |
Table of Contents
Schedule of Investments(a)
August 31, 2010
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.3% | ||||||||
Advertising–0.2% | ||||||||
Interpublic Group of Cos., Inc.(b) | 25,027 | $ | 213,480 | |||||
Omnicom Group, Inc. | 15,700 | 549,657 | ||||||
763,137 | ||||||||
Aerospace & Defense–2.7% | ||||||||
Boeing Co. (The) | 38,824 | 2,373,311 | ||||||
General Dynamics Corp. | 19,729 | 1,102,259 | ||||||
Goodrich Corp. | 6,390 | 437,587 | ||||||
Honeywell International, Inc. | 39,189 | 1,531,898 | ||||||
ITT Corp. | 9,361 | 397,843 | ||||||
L-3 Communications Holdings, Inc. | 5,893 | 392,474 | ||||||
Lockheed Martin Corp. | 15,939 | 1,108,079 | ||||||
Northrop Grumman Corp. | 15,405 | 833,719 | ||||||
Precision Castparts Corp. | 7,272 | 823,045 | ||||||
Raytheon Co. | 19,490 | 856,001 | ||||||
Rockwell Collins, Inc. | 8,087 | 436,132 | ||||||
United Technologies Corp. | 47,725 | 3,112,147 | ||||||
13,404,495 | ||||||||
Agricultural Products–0.2% | ||||||||
Archer-Daniels-Midland Co. | 32,890 | 1,012,354 | ||||||
Air Freight & Logistics–1.1% | ||||||||
C.H. Robinson Worldwide, Inc. | 8,534 | 554,624 | ||||||
Expeditors International of Washington, Inc. | 10,888 | 431,056 | ||||||
FedEx Corp. | 16,019 | 1,250,283 | ||||||
United Parcel Service, Inc. (Class B) | 50,661 | 3,232,172 | ||||||
5,468,135 | ||||||||
Airlines–0.1% | ||||||||
Southwest Airlines Co. | 38,076 | 420,740 | ||||||
Aluminum–0.1% | ||||||||
Alcoa, Inc. | 52,224 | 533,207 | ||||||
Apparel Retail–0.5% | ||||||||
Abercrombie & Fitch Co. (Class A) | 4,543 | 157,188 | ||||||
Gap, Inc. (The) | 22,960 | 387,795 | ||||||
Limited Brands, Inc. | 13,805 | 325,798 | ||||||
Ross Stores, Inc. | 6,251 | 310,237 | ||||||
TJX Cos., Inc. | 20,867 | 828,211 | ||||||
Urban Outfitters, Inc.(b) | 6,657 | 201,840 | ||||||
2,211,069 | ||||||||
Apparel, Accessories & Luxury Goods–0.2% | ||||||||
Coach, Inc. | 15,605 | 559,283 | ||||||
Polo Ralph Lauren Corp. | 3,363 | 254,714 | ||||||
VF Corp. | 4,537 | 320,403 | ||||||
1,134,400 | ||||||||
Application Software–0.6% | ||||||||
Adobe Systems, Inc.(b) | 26,926 | 747,466 | ||||||
Autodesk, Inc.(b) | 11,735 | 325,646 | ||||||
Citrix Systems, Inc.(b) | 9,480 | 549,271 | ||||||
Compuware Corp.(b) | 11,509 | 82,635 | ||||||
Intuit, Inc.(b) | 16,066 | 687,625 | ||||||
Salesforce.com, Inc.(b) | 5,757 | 632,579 | ||||||
3,025,222 | ||||||||
Asset Management & Custody Banks–1.2% | ||||||||
Ameriprise Financial, Inc. | 13,081 | 570,070 | ||||||
Bank of New York Mellon Corp. (The) | 62,040 | 1,505,711 | ||||||
Federated Investors, Inc. (Class B) | 4,573 | 95,347 | ||||||
Franklin Resources, Inc. | 7,603 | 733,765 | ||||||
Invesco Ltd. | 23,895 | 432,499 | ||||||
Janus Capital Group, Inc. | 9,373 | 85,107 | ||||||
Legg Mason, Inc. | 7,954 | 201,475 | ||||||
Northern Trust Corp. | 12,369 | 570,706 | ||||||
State Street Corp. | 25,661 | 900,188 | ||||||
T. Rowe Price Group, Inc. | 13,276 | 581,223 | ||||||
5,676,091 | ||||||||
Auto Parts & Equipment–0.2% | ||||||||
Johnson Controls, Inc. | 34,407 | 912,818 | ||||||
Automobile Manufacturers–0.4% | ||||||||
Ford Motor Co.(b) | 174,243 | 1,967,203 | ||||||
Automotive Retail–0.2% | ||||||||
AutoNation, Inc.(b) | 3,984 | 89,959 | ||||||
AutoZone, Inc.(b) | 1,489 | 312,362 | ||||||
O’Reilly Automotive, Inc.(b) | 7,064 | 333,915 | ||||||
736,236 | ||||||||
Biotechnology–1.4% | ||||||||
Amgen, Inc.(b) | 48,997 | 2,500,807 | ||||||
Biogen Idec, Inc.(b) | 12,372 | 665,614 | ||||||
Celgene Corp.(b) | 23,571 | 1,214,378 | ||||||
Cephalon, Inc.(b) | 3,858 | 218,401 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco S&P 500 Index Fund
Table of Contents
Shares | Value | |||||||
Biotechnology–(continued) | ||||||||
Genzyme Corp.(b) | 13,650 | $ | 957,001 | |||||
Gilead Sciences, Inc.(b) | 42,895 | 1,366,635 | ||||||
6,922,836 | ||||||||
Brewers–0.1% | ||||||||
Molson Coors Brewing Co. (Class B) | 8,107 | 353,141 | ||||||
Broadcasting–0.2% | ||||||||
CBS Corp. (Class B) | 34,778 | 480,632 | ||||||
Discovery Communications, Inc. (Class A)(b) | 14,541 | 548,923 | ||||||
1,029,555 | ||||||||
Building Products–0.0% | ||||||||
Masco Corp. | 18,346 | 192,450 | ||||||
Cable & Satellite–1.1% | ||||||||
Comcast Corp. (Class A) | 144,323 | 2,470,810 | ||||||
DirecTV (Class A)(b) | 46,483 | 1,762,635 | ||||||
Scripps Networks Interactive, Inc. (Class A) | 4,627 | 185,913 | ||||||
Time Warner Cable, Inc. | 18,106 | 934,451 | ||||||
5,353,809 | ||||||||
Casinos & Gaming–0.1% | ||||||||
International Game Technology | 15,247 | 222,606 | ||||||
Wynn Resorts Ltd. | 3,535 | 284,957 | ||||||
507,563 | ||||||||
Coal & Consumable Fuels–0.2% | ||||||||
Consol Energy, Inc. | 11,544 | 371,717 | ||||||
Massey Energy Co. | 5,220 | 150,075 | ||||||
Peabody Energy Corp. | 13,748 | 588,414 | ||||||
1,110,206 | ||||||||
Commercial Printing–0.0% | ||||||||
RR Donnelley & Sons Co. | 10,551 | 159,795 | ||||||
Communications Equipment–2.5% | ||||||||
Cisco Systems, Inc.(b) | 292,120 | 5,857,006 | ||||||
Corning, Inc. | 79,831 | 1,251,750 | ||||||
Harris Corp. | 6,635 | 279,134 | ||||||
JDS Uniphase Corp.(b) | 11,484 | 105,538 | ||||||
Juniper Networks, Inc.(b) | 26,911 | 731,979 | ||||||
Motorola, Inc.(b) | 118,875 | 895,129 | ||||||
QUALCOMM, Inc. | 83,903 | 3,214,324 | ||||||
Tellabs, Inc. | 19,705 | 139,906 | ||||||
12,474,766 | ||||||||
Computer & Electronics Retail–0.2% | ||||||||
Best Buy Co., Inc. | 17,695 | 555,446 | ||||||
GameStop Corp. (Class A)(b) | 7,846 | 140,679 | ||||||
RadioShack Corp. | 6,401 | 118,290 | ||||||
814,415 | ||||||||
Computer Hardware–5.2% | ||||||||
Apple, Inc.(b) | 46,542 | 11,326,927 | ||||||
Dell, Inc.(b) | 88,136 | 1,037,361 | ||||||
Hewlett-Packard Co. | 119,407 | 4,594,781 | ||||||
International Business Machines Corp. | 65,591 | 8,082,779 | ||||||
Teradata Corp.(b) | 8,487 | 277,864 | ||||||
25,319,712 | ||||||||
Computer Storage & Peripherals–0.7% | ||||||||
EMC Corp.(b) | 105,142 | 1,917,790 | ||||||
Lexmark International, Inc.(b) | 4,032 | 141,080 | ||||||
NetApp, Inc.(b) | 17,627 | 712,836 | ||||||
QLogic Corp.(b) | 5,672 | 84,484 | ||||||
SanDisk Corp.(b) | 11,762 | 390,969 | ||||||
Western Digital Corp.(b) | 11,721 | 283,062 | ||||||
3,530,221 | ||||||||
Construction & Engineering–0.2% | ||||||||
Fluor Corp. | 9,110 | 406,852 | ||||||
Jacobs Engineering Group, Inc.(b) | 6,382 | 221,328 | ||||||
Quanta Services, Inc.(b) | 10,787 | 193,519 | ||||||
821,699 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.0% | ||||||||
Caterpillar, Inc. | 32,108 | 2,092,157 | ||||||
Cummins, Inc. | 10,258 | 763,298 | ||||||
Deere & Co. | 21,729 | 1,374,794 | ||||||
PACCAR, Inc. | 18,663 | 764,996 | ||||||
4,995,245 | ||||||||
Construction Materials–0.1% | ||||||||
Vulcan Materials Co. | 6,523 | 239,785 | ||||||
Consumer Electronics–0.0% | ||||||||
Harman International Industries, Inc.(b) | 3,560 | 110,965 | ||||||
Consumer Finance–0.8% | ||||||||
American Express Co. | 61,442 | 2,449,693 | ||||||
Capital One Financial Corp. | 23,350 | 884,031 | ||||||
Discover Financial Services | 27,816 | 403,610 | ||||||
SLM Corp.(b) | 24,845 | 274,537 | ||||||
4,011,871 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco S&P 500 Index Fund
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Shares | Value | |||||||
Data Processing & Outsourced Services–1.2% | ||||||||
Automatic Data Processing, Inc. | 25,727 | $ | 993,319 | |||||
Computer Sciences Corp. | 7,888 | 314,021 | ||||||
Fidelity National Information Services, Inc. | 13,065 | 337,600 | ||||||
Fiserv, Inc.(b) | 7,835 | 391,985 | ||||||
Mastercard, Inc. (Class A) | 4,948 | 981,485 | ||||||
Paychex, Inc. | 16,452 | 409,490 | ||||||
Total System Services, Inc. | 10,093 | 143,321 | ||||||
Visa, Inc. (Class A) | 23,148 | 1,596,749 | ||||||
Western Union Co. (The) | 34,379 | 539,063 | ||||||
5,707,033 | ||||||||
Department Stores–0.4% | ||||||||
JC Penney Co., Inc. | 12,082 | 241,640 | ||||||
Kohl’s Corp.(b) | 15,749 | 739,888 | ||||||
Macy’s, Inc. | 21,589 | 419,690 | ||||||
Nordstrom, Inc. | 8,467 | 244,866 | ||||||
Sears Holdings Corp.(b) | 2,439 | 150,974 | ||||||
1,797,058 | ||||||||
Distillers & Vintners–0.1% | ||||||||
Brown-Forman Corp. (Class B) | 5,522 | 338,444 | ||||||
Constellation Brands, Inc.(b) | 9,799 | 163,251 | ||||||
501,695 | ||||||||
Distributors–0.1% | ||||||||
Genuine Parts Co. | 8,160 | 342,149 | ||||||
Diversified Banks–1.8% | ||||||||
Comerica, Inc. | 8,983 | 309,105 | ||||||
US Bancorp | 98,047 | 2,039,377 | ||||||
Wells Fargo & Co. | 266,494 | 6,275,934 | ||||||
8,624,416 | ||||||||
Diversified Chemicals–0.9% | ||||||||
Dow Chemical Co. (The) | 59,071 | 1,439,560 | ||||||
Eastman Chemical Co. | 3,711 | 228,412 | ||||||
EI Du Pont de Nemours & Co. | 46,342 | 1,889,364 | ||||||
FMC Corp. | 3,727 | 232,118 | ||||||
PPG Industries, Inc. | 8,457 | 556,724 | ||||||
4,346,178 | ||||||||
Diversified Metals & Mining–0.4% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 24,127 | 1,736,662 | ||||||
Titanium Metals Corp.(b) | 4,342 | 78,677 | ||||||
1,815,339 | ||||||||
Diversified Support Services–0.1% | ||||||||
Cintas Corp. | 6,721 | 171,319 | ||||||
Iron Mountain, Inc. | 9,226 | 187,103 | ||||||
358,422 | ||||||||
Drug Retail–0.7% | ||||||||
CVS Caremark Corp. | 69,607 | 1,879,389 | ||||||
Walgreen Co. | 50,045 | 1,345,210 | ||||||
3,224,599 | ||||||||
Education Services–0.1% | ||||||||
Apollo Group, Inc. (Class A)(b) | 6,424 | 272,891 | ||||||
DeVry, Inc. | 3,162 | 120,504 | ||||||
393,395 | ||||||||
Electric Utilities–2.1% | ||||||||
Allegheny Energy, Inc. | 8,628 | 194,561 | ||||||
American Electric Power Co., Inc. | 24,493 | 867,297 | ||||||
Duke Energy Corp. | 67,165 | 1,154,566 | ||||||
Edison International | 16,664 | 562,410 | ||||||
Entergy Corp. | 9,667 | 762,146 | ||||||
Exelon Corp. | 33,787 | 1,375,807 | ||||||
FirstEnergy Corp. | 15,591 | 569,539 | ||||||
NextEra Energy, Inc. | 21,209 | 1,139,560 | ||||||
Northeast Utilities | 8,966 | 259,745 | ||||||
Pepco Holdings, Inc. | 11,416 | 204,917 | ||||||
Pinnacle West Capital Corp. | 5,509 | 219,534 | ||||||
PPL Corp. | 23,967 | 650,944 | ||||||
Progress Energy, Inc. | 14,688 | 630,262 | ||||||
Southern Co. | 42,174 | 1,547,364 | ||||||
10,138,652 | ||||||||
Electrical Components & Equipment–0.5% | ||||||||
Emerson Electric Co. | 38,523 | 1,797,098 | ||||||
First Solar, Inc.(b) | 2,511 | 321,031 | ||||||
Rockwell Automation, Inc. | 7,293 | 372,964 | ||||||
2,491,093 | ||||||||
Electronic Components–0.1% | ||||||||
Amphenol Corp. (Class A) | 8,851 | 360,413 | ||||||
Electronic Equipment & Instruments–0.1% | ||||||||
Agilent Technologies, Inc.(b) | 17,802 | 480,120 | ||||||
FLIR Systems, Inc.(b) | 7,873 | 197,770 | ||||||
677,890 | ||||||||
Electronic Manufacturing Services–0.0% | ||||||||
Jabil Circuit, Inc. | 9,901 | 101,485 | ||||||
Molex, Inc. | 6,942 | 122,527 | ||||||
224,012 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco S&P 500 Index Fund
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Shares | Value | |||||||
Environmental & Facilities Services–0.3% | ||||||||
Republic Services, Inc. | 16,600 | $ | 488,538 | |||||
Stericycle, Inc.(b) | 4,355 | 285,253 | ||||||
Waste Management, Inc. | 24,705 | 817,488 | ||||||
1,591,279 | ||||||||
Fertilizers & Agricultural Chemicals–0.4% | ||||||||
CF Industries Holdings, Inc. | 3,640 | 336,700 | ||||||
Monsanto Co. | 27,904 | 1,469,146 | ||||||
1,805,846 | ||||||||
Food–Retail–0.3% | ||||||||
Kroger Co. (The) | 33,053 | 652,136 | ||||||
Safeway, Inc. | 19,876 | 373,669 | ||||||
SUPERVALU, Inc. | 10,854 | 105,501 | ||||||
Whole Foods Market, Inc.(b) | 8,727 | 303,612 | ||||||
1,434,918 | ||||||||
Food Distributors–0.2% | ||||||||
Sysco Corp. | 30,258 | 831,792 | ||||||
Footwear–0.3% | ||||||||
NIKE, Inc. (Class B) | 19,874 | 1,391,180 | ||||||
Forest Products–0.0% | ||||||||
Weyerhaeuser Co. | 10,822 | 169,905 | ||||||
Gas Utilities–0.1% | ||||||||
EQT Corp. | 7,358 | 239,871 | ||||||
Nicor, Inc. | 2,282 | 96,506 | ||||||
336,377 | ||||||||
General Merchandise Stores–0.5% | ||||||||
Big Lots, Inc.(b) | 4,133 | 129,198 | ||||||
Family Dollar Stores, Inc. | 6,908 | 295,593 | ||||||
Target Corp. | 37,669 | 1,927,146 | ||||||
2,351,937 | ||||||||
Gold–0.3% | ||||||||
Newmont Mining Corp. | 25,128 | 1,540,849 | ||||||
Health Care Distributors–0.4% | ||||||||
AmerisourceBergen Corp. | 14,450 | 394,196 | ||||||
Cardinal Health, Inc. | 18,519 | 554,829 | ||||||
McKesson Corp. | 13,881 | 805,792 | ||||||
Patterson Cos., Inc. | 4,811 | 121,670 | ||||||
1,876,487 | ||||||||
Health Care Equipment–1.6% | ||||||||
Baxter International, Inc. | 30,507 | 1,298,378 | ||||||
Becton Dickinson and Co. | 11,933 | 813,711 | ||||||
Boston Scientific Corp.(b) | 77,558 | 402,526 | ||||||
C.R. Bard, Inc. | 4,906 | 376,928 | ||||||
CareFusion Corp.(b) | 9,063 | 195,580 | ||||||
Hospira, Inc.(b) | 8,534 | 438,306 | ||||||
Intuitive Surgical, Inc.(b) | 2,001 | 530,325 | ||||||
Medtronic, Inc. | 56,342 | 1,773,646 | ||||||
St Jude Medical, Inc.(b) | 16,714 | 577,803 | ||||||
Stryker Corp. | 14,406 | 622,195 | ||||||
Varian Medical Systems, Inc.(b) | 6,304 | 335,625 | ||||||
Zimmer Holdings, Inc.(b) | 10,372 | 489,247 | ||||||
7,854,270 | ||||||||
Health Care Facilities–0.0% | ||||||||
Tenet Healthcare Corp.(b) | 22,288 | 87,369 | ||||||
Health Care Services–0.7% | ||||||||
Cerner Corp(b) | 3,448 | 251,187 | ||||||
DaVita, Inc.(b) | 5,270 | 340,547 | ||||||
Express Scripts, Inc.(b) | 28,034 | 1,194,249 | ||||||
Laboratory Corp. of America Holdings(b) | 5,275 | 383,071 | ||||||
Medco Health Solutions, Inc.(b) | 22,180 | 964,386 | ||||||
Quest Diagnostics, Inc. | 7,730 | 336,255 | ||||||
3,469,695 | ||||||||
Health Care Supplies–0.0% | ||||||||
DENTSPLY International, Inc. | 7,485 | 208,233 | ||||||
Home Building–0.1% | ||||||||
DR Horton, Inc. | 14,159 | 145,271 | ||||||
Lennar Corp. (Class A) | 8,368 | 110,207 | ||||||
Pulte Group, Inc.(b) | 16,242 | 130,423 | ||||||
385,901 | ||||||||
Home Entertainment Software–0.1% | ||||||||
Electronic Arts, Inc.(b) | 16,768 | 255,544 | ||||||
Home Furnishings–0.0% | ||||||||
Leggett & Platt, Inc. | 7,573 | 145,174 | ||||||
Home Improvement Retail–0.9% | ||||||||
Home Depot, Inc. | 85,948 | 2,390,214 | ||||||
Lowe’s Cos., Inc. | 73,101 | 1,483,950 | ||||||
Sherwin-Williams Co. (The) | 4,707 | 331,279 | ||||||
4,205,443 | ||||||||
Homefurnishing Retail–0.1% | ||||||||
Bed Bath & Beyond, Inc.(b) | 13,465 | 484,336 | ||||||
Hotels, Resorts & Cruise Lines–0.4% | ||||||||
Carnival Corp. (Units) | 22,142 | 690,388 | ||||||
Marriott International, Inc. (Class A) | 13,122 | 420,035 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco S&P 500 Index Fund
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Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 9,677 | $ | 452,206 | |||||
Wyndham Worldwide Corp. | 9,176 | 212,791 | ||||||
1,775,420 | ||||||||
Household Appliances–0.2% | ||||||||
Snap-On, Inc. | 2,943 | 121,340 | ||||||
Stanley Black & Decker, Inc. | 8,245 | 442,262 | ||||||
Whirlpool Corp. | 3,854 | 285,812 | ||||||
849,414 | ||||||||
Household Products–2.5% | ||||||||
Clorox Co. | 7,203 | 466,899 | ||||||
Colgate-Palmolive Co. | 25,085 | 1,852,276 | ||||||
Kimberly-Clark Corp. | 21,173 | 1,363,541 | ||||||
Procter & Gamble Co. (The) | 147,304 | 8,789,630 | ||||||
12,472,346 | ||||||||
Housewares & Specialties–0.1% | ||||||||
Fortune Brands, Inc. | 7,820 | 350,258 | ||||||
Newell Rubbermaid, Inc. | 14,229 | 213,719 | ||||||
563,977 | ||||||||
Human Resource & Employment Services–0.1% | ||||||||
Monster Worldwide, Inc.(b) | 6,440 | 71,033 | ||||||
Robert Half International, Inc. | 7,673 | 165,584 | ||||||
236,617 | ||||||||
Hypermarkets & Super Centers–1.3% | ||||||||
Costco Wholesale Corp. | 22,554 | 1,275,429 | ||||||
Wal-Mart Stores, Inc. | 106,257 | 5,327,726 | ||||||
6,603,155 | ||||||||
Independent Power Producers & Energy Traders–0.2% | ||||||||
AES Corp. (The)(b) | 34,173 | 349,931 | ||||||
Constellation Energy Group, Inc. | 10,315 | 302,539 | ||||||
NRG Energy, Inc.(b) | 13,059 | 265,359 | ||||||
917,829 | ||||||||
Industrial Conglomerates–2.4% | ||||||||
3M Co. | 36,472 | 2,864,876 | ||||||
General Electric Co.(c) | 546,095 | 7,907,456 | ||||||
Textron, Inc. | 13,979 | 238,621 | ||||||
Tyco International Ltd. (Luxembourg) | 26,103 | 973,120 | ||||||
11,984,073 | ||||||||
Industrial Gases–0.4% | ||||||||
Air Products & Chemicals, Inc. | 10,860 | 803,966 | ||||||
Praxair, Inc. | 15,648 | 1,346,197 | ||||||
2,150,163 | ||||||||
Industrial Machinery–0.8% | ||||||||
Danaher Corp. | 26,900 | 977,277 | ||||||
Dover Corp. | 9,540 | 427,010 | ||||||
Eaton Corp. | 8,524 | 592,248 | ||||||
Flowserve Corp. | 2,851 | 254,822 | ||||||
Illinois Tool Works, Inc. | 19,789 | 816,494 | ||||||
Pall Corp. | 5,955 | 203,602 | ||||||
Parker Hannifin Corp. | 8,278 | 489,727 | ||||||
Roper Industries, Inc. | 4,842 | 281,223 | ||||||
4,042,403 | ||||||||
Industrial REIT’s–0.1% | ||||||||
ProLogis | 24,375 | 264,469 | ||||||
Insurance Brokers–0.2% | ||||||||
AON Corp. | 13,780 | 499,387 | ||||||
Marsh & McLennan Cos., Inc. | 27,683 | 656,641 | ||||||
1,156,028 | ||||||||
Integrated Oil & Gas–6.6% | ||||||||
Chevron Corp. | 102,740 | 7,619,198 | ||||||
ConocoPhillips | 76,125 | 3,991,234 | ||||||
Exxon Mobil Corp. | 261,480 | 15,469,157 | ||||||
Hess Corp. | 14,946 | 751,036 | ||||||
Marathon Oil Corp. | 36,289 | 1,106,452 | ||||||
Murphy Oil Corp. | 9,782 | 523,924 | ||||||
Occidental Petroleum Corp. | 41,541 | 3,035,816 | ||||||
32,496,817 | ||||||||
Integrated Telecommunication Services–2.9% | ||||||||
AT&T, Inc. | 302,240 | 8,169,547 | ||||||
CenturyTel, Inc. | 15,365 | 555,599 | ||||||
Frontier Communications Corp. | 50,680 | 391,756 | ||||||
Qwest Communications International, Inc. | 76,372 | 431,502 | ||||||
Verizon Communications, Inc. | 144,585 | 4,266,703 | ||||||
Windstream Corp. | 24,709 | 285,018 | ||||||
14,100,125 | ||||||||
Internet Retail–0.6% | ||||||||
Amazon.com, Inc.(b) | 17,552 | 2,191,016 | ||||||
Expedia, Inc. | 10,604 | 242,407 | ||||||
Priceline.com, Inc.(b) | 2,422 | 705,965 | ||||||
3,139,388 | ||||||||
Internet Software & Services–1.7% | ||||||||
Akamai Technologies, Inc.(b) | 9,250 | 426,148 | ||||||
eBay, Inc.(b) | 58,159 | 1,351,615 | ||||||
Google, Inc. (Class A)(b) | 12,379 | 5,570,798 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco S&P 500 Index Fund
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Shares | Value | |||||||
Internet Software & Services–(continued) | ||||||||
VeriSign, Inc.(b) | 9,309 | $ | 271,171 | |||||
Yahoo!, Inc.(b) | 60,217 | 787,638 | ||||||
8,407,370 | ||||||||
Investment Banking & Brokerage–1.3% | ||||||||
Charles Schwab Corp. (The) | 50,057 | 638,728 | ||||||
E*Trade Financial Corp.(b) | 10,127 | 125,676 | ||||||
Goldman Sachs Group, Inc. (The) | 26,331 | 3,605,767 | ||||||
Morgan Stanley | 71,496 | 1,765,236 | ||||||
6,135,407 | ||||||||
IT Consulting & Other Services–0.2% | ||||||||
Cognizant Technology Solutions Corp. (Class A)(b) | 15,314 | 882,163 | ||||||
SAIC, Inc.(b) | 14,965 | 222,679 | ||||||
1,104,842 | ||||||||
Leisure Products–0.1% | ||||||||
Hasbro, Inc. | 6,692 | 270,089 | ||||||
Mattel, Inc. | 18,655 | 391,569 | ||||||
661,658 | ||||||||
Life & Health Insurance–1.1% | ||||||||
Aflac, Inc. | 24,016 | 1,134,756 | ||||||
Lincoln National Corp. | 15,471 | 361,403 | ||||||
MetLife, Inc. | 45,785 | 1,721,516 | ||||||
Principal Financial Group, Inc. | 16,353 | 376,937 | ||||||
Prudential Financial, Inc. | 23,834 | 1,205,285 | ||||||
Torchmark Corp. | 4,244 | 209,441 | ||||||
Unum Group | 17,023 | 341,311 | ||||||
5,350,649 | ||||||||
Life Sciences Tools & Services–0.3% | ||||||||
Life Technologies Corp.(b) | 9,324 | 398,788 | ||||||
PerkinElmer, Inc. | 6,002 | 126,102 | ||||||
Thermo Fisher Scientific, Inc.(b) | 20,991 | 884,141 | ||||||
Waters Corp.(b) | 4,793 | 290,072 | ||||||
1,699,103 | ||||||||
Managed Health Care–0.9% | ||||||||
Aetna, Inc. | 21,732 | 580,679 | ||||||
CIGNA Corp. | 14,151 | 455,945 | ||||||
Coventry Health Care, Inc.(b) | 7,566 | 146,402 | ||||||
Humana, Inc.(b) | 8,661 | 413,909 | ||||||
UnitedHealth Group, Inc. | 58,139 | 1,844,169 | ||||||
WellPoint, Inc.(b) | 20,445 | 1,015,708 | ||||||
4,456,812 | ||||||||
Metal & Glass Containers–0.1% | ||||||||
Ball Corp. | 4,760 | 266,941 | ||||||
Owens-Illinois, Inc.(b) | 8,485 | 212,634 | ||||||
Pactiv Corp.(b) | 6,796 | 218,016 | ||||||
697,591 | ||||||||
Motorcycle Manufacturers–0.1% | ||||||||
Harley-Davidson, Inc. | 12,042 | 292,861 | ||||||
Movies & Entertainment–1.5% | ||||||||
News Corp. (Class A) | 115,279 | 1,449,057 | ||||||
Time Warner, Inc. | 58,295 | 1,747,684 | ||||||
Viacom, Inc. (Class B) | 31,066 | 976,094 | ||||||
Walt Disney Co. (The) | 100,178 | 3,264,801 | ||||||
7,437,636 | ||||||||
Multi-line Insurance–0.4% | ||||||||
American International Group, Inc.(b) | 6,908 | 234,388 | ||||||
Assurant, Inc. | 5,687 | 207,917 | ||||||
Genworth Financial, Inc. (Class A)(b) | 25,015 | 270,913 | ||||||
Hartford Financial Services Group, Inc. | 22,714 | 457,914 | ||||||
Loews Corp. | 17,980 | 631,817 | ||||||
1,802,949 | ||||||||
Multi-Sector Holdings–0.0% | ||||||||
Leucadia National Corp.(b) | 9,692 | 206,924 | ||||||
Multi-Utilities–1.5% | ||||||||
Ameren Corp. | 12,187 | 342,089 | ||||||
Centerpoint Energy, Inc. | 21,298 | 314,997 | ||||||
CMS Energy Corp. | 11,758 | 205,765 | ||||||
Consolidated Edison, Inc. | 14,422 | 685,478 | ||||||
Dominion Resources, Inc. | 30,487 | 1,303,624 | ||||||
DTE Energy Co. | 8,567 | 401,364 | ||||||
Integrys Energy Group, Inc. | 3,954 | 191,571 | ||||||
NiSource, Inc. | 14,190 | 246,055 | ||||||
Oneok, Inc. | 5,396 | 231,542 | ||||||
PG&E Corp. | 19,044 | 890,498 | ||||||
Public Service Enterprise Group, Inc. | 25,879 | 827,093 | ||||||
SCANA Corp. | 5,770 | 225,203 | ||||||
Sempra Energy | 12,660 | 644,647 | ||||||
TECO Energy, Inc. | 10,940 | 184,667 | ||||||
Wisconsin Energy Corp. | 5,954 | 331,876 | ||||||
Xcel Energy, Inc. | 23,505 | 524,397 | ||||||
7,550,866 | ||||||||
Office Electronics–0.1% | ||||||||
Xerox Corp. | 70,536 | 595,324 | ||||||
Office REIT’s–0.1% | ||||||||
Boston Properties, Inc. | 7,110 | 578,754 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco S&P 500 Index Fund
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Shares | Value | |||||||
Office Services & Supplies–0.1% | ||||||||
Avery Dennison Corp. | 5,614 | $ | 182,567 | |||||
Pitney Bowes, Inc. | 10,614 | 204,214 | ||||||
386,781 | ||||||||
Oil & Gas Drilling–0.2% | ||||||||
Diamond Offshore Drilling, Inc. | 3,559 | 207,062 | ||||||
Helmerich & Payne, Inc. | 5,366 | 198,757 | ||||||
Nabors Industries Ltd. (Bermuda)(b) | 14,588 | 228,740 | ||||||
Rowan Cos., Inc.(b) | 5,824 | 149,735 | ||||||
784,294 | ||||||||
Oil & Gas Equipment & Services–1.5% | ||||||||
Baker Hughes, Inc. | 21,944 | 824,655 | ||||||
Cameron International Corp.(b) | 12,489 | 459,345 | ||||||
FMC Technologies, Inc.(b) | 6,201 | 383,532 | ||||||
Halliburton Co. | 46,303 | 1,306,208 | ||||||
National Oilwell Varco, Inc. | 21,431 | 805,591 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 69,864 | 3,725,836 | ||||||
7,505,167 | ||||||||
Oil & Gas Exploration & Production–1.7% | ||||||||
Anadarko Petroleum Corp. | 25,304 | 1,163,731 | ||||||
Apache Corp. | 18,427 | 1,655,666 | ||||||
Cabot Oil & Gas Corp. | 5,270 | 146,717 | ||||||
Chesapeake Energy Corp. | 33,293 | 688,499 | ||||||
Denbury Resources, Inc.(b) | 20,420 | 300,991 | ||||||
Devon Energy Corp. | 22,857 | 1,377,820 | ||||||
EOG Resources, Inc. | 12,948 | 1,124,793 | ||||||
Noble Energy, Inc. | 8,894 | 620,623 | ||||||
Pioneer Natural Resources Co. | 5,903 | 341,311 | ||||||
QEP Resources | 8,919 | 258,919 | ||||||
Range Resources Corp. | 8,193 | 277,005 | ||||||
Southwestern Energy Co.(b) | 17,707 | 579,373 | ||||||
8,535,448 | ||||||||
Oil & Gas Refining & Marketing–0.2% | ||||||||
Sunoco, Inc. | 6,147 | 207,031 | ||||||
Tesoro Corp. | 7,223 | 81,114 | ||||||
Valero Energy Corp. | 28,923 | 456,116 | ||||||
744,261 | ||||||||
Oil & Gas Storage & Transportation–0.3% | ||||||||
El Paso Corp. | 35,995 | 409,983 | ||||||
Spectra Energy Corp. | 33,143 | 674,129 | ||||||
Williams Cos., Inc. (The) | 29,884 | 541,797 | ||||||
1,625,909 | ||||||||
Other Diversified Financial Services–3.7% | ||||||||
Bank of America Corp. | 513,177 | 6,389,053 | ||||||
Citigroup, Inc.(b) | 1,156,194 | 4,301,042 | ||||||
JPMorgan Chase & Co. | 203,506 | 7,399,478 | ||||||
18,089,573 | ||||||||
Packaged Foods & Meats–1.8% | ||||||||
Campbell Soup Co. | 9,553 | 355,945 | ||||||
ConAgra Foods, Inc. | 22,789 | 492,015 | ||||||
Dean Foods Co.(b) | 9,257 | 94,699 | ||||||
General Mills, Inc. | 33,939 | 1,227,234 | ||||||
Hershey Co. (The) | 8,534 | 396,575 | ||||||
HJ Heinz Co. | 16,174 | 747,886 | ||||||
Hormel Foods Corp. | 3,547 | 153,053 | ||||||
JM Smucker Co. (The) | 6,071 | 355,032 | ||||||
Kellogg Co. | 13,045 | 648,076 | ||||||
Kraft Foods, Inc. (Class A) | 89,177 | 2,670,851 | ||||||
McCormick & Co., Inc. | 6,775 | 270,119 | ||||||
Mead Johnson Nutrition Co. | 10,460 | 545,907 | ||||||
Sara Lee Corp. | 33,822 | 488,390 | ||||||
Tyson Foods, Inc. (Class A) | 15,617 | 255,806 | ||||||
8,701,588 | ||||||||
Paper Packaging–0.1% | ||||||||
Bemis Co., Inc. | 5,542 | 159,998 | ||||||
Sealed Air Corp. | 8,196 | 168,100 | ||||||
328,098 | ||||||||
Paper Products–0.1% | ||||||||
International Paper Co. | 22,330 | 456,872 | ||||||
MeadWestvaco Corp. | 8,695 | 189,203 | ||||||
646,075 | ||||||||
Personal Products–0.2% | ||||||||
Avon Products, Inc. | 21,911 | 637,610 | ||||||
Estee Lauder Cos., Inc. (The) (Class A) | 6,100 | 342,027 | ||||||
979,637 | ||||||||
Pharmaceuticals–6.2% | ||||||||
Abbott Laboratories | 78,952 | 3,895,492 | ||||||
Allergan, Inc. | 15,728 | 966,014 | ||||||
Bristol-Myers Squibb Co. | 87,959 | 2,293,971 | ||||||
Eli Lilly & Co. | 51,904 | 1,741,898 | ||||||
Forest Laboratories, Inc.(b) | 14,605 | 398,570 | ||||||
Johnson & Johnson | 141,072 | 8,043,925 | ||||||
King Pharmaceuticals, Inc.(b) | 12,767 | 111,201 | ||||||
Merck & Co., Inc. | 159,495 | 5,607,844 | ||||||
Mylan, Inc.(b) | 15,796 | 271,059 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Pfizer, Inc. | 412,576 | $ | 6,572,336 | |||||
Watson Pharmaceuticals, Inc.(b) | 5,440 | 234,301 | ||||||
30,136,611 | ||||||||
Photographic Products–0.0% | ||||||||
Eastman Kodak Co.(b) | 13,742 | 47,960 | ||||||
Property & Casualty Insurance–2.4% | ||||||||
ACE Ltd. (Switzerland) | 17,214 | 920,433 | ||||||
Allstate Corp. (The) | 27,513 | 759,359 | ||||||
Berkshire Hathaway, Inc. (Class B)(b) | 84,670 | 6,670,303 | ||||||
Chubb Corp. | 16,713 | 921,220 | ||||||
Cincinnati Financial Corp. | 8,381 | 223,605 | ||||||
Progressive Corp. (The) | 34,290 | 678,942 | ||||||
Travelers Cos., Inc. (The) | 24,038 | 1,177,381 | ||||||
XL Group PLC (Cayman Islands) | 17,496 | 313,353 | ||||||
11,664,596 | ||||||||
Publishing–0.2% | ||||||||
Gannett Co., Inc. | 12,181 | 147,268 | ||||||
McGraw-Hill Cos., Inc. (The) | 16,137 | 446,188 | ||||||
Meredith Corp. | 1,835 | 53,692 | ||||||
New York Times Co. (The) (Class A)(b) | 5,932 | 42,592 | ||||||
Washington Post Co. (The) (Class B) | 318 | 114,553 | ||||||
804,293 | ||||||||
Railroads–0.8% | ||||||||
CSX Corp. | 19,908 | 993,210 | ||||||
Norfolk Southern Corp. | 18,927 | 1,016,001 | ||||||
Union Pacific Corp. | 25,887 | 1,888,198 | ||||||
3,897,409 | ||||||||
Real Estate Services–0.0% | ||||||||
CB Richard Ellis Group, Inc. (Class A)(b) | 13,825 | 227,007 | ||||||
Regional Banks–1.0% | ||||||||
BB&T Corp. | 35,399 | 783,026 | ||||||
Fifth Third Bancorp | 40,654 | 449,227 | ||||||
First Horizon National Corp.(b) | 11,691 | 117,845 | ||||||
Huntington Bancshares, Inc. | 36,651 | 193,884 | ||||||
KeyCorp | 44,967 | 331,407 | ||||||
M&T Bank Corp. | 4,228 | 362,086 | ||||||
Marshall & Ilsley Corp. | 26,968 | 176,640 | ||||||
PNC Financial Services Group, Inc. | 26,906 | 1,371,130 | ||||||
Regions Financial Corp. | 64,240 | 413,063 | ||||||
SunTrust Banks, Inc. | 25,567 | 575,002 | ||||||
Zions BanCorp. | 8,789 | 161,981 | ||||||
4,935,291 | ||||||||
REIT–Diversified–0.1% | ||||||||
Vornado Realty Trust | 8,133 | 659,261 | ||||||
Research & Consulting Services–0.1% | ||||||||
Dun & Bradstreet Corp. | 2,552 | 168,177 | ||||||
Equifax, Inc. | 6,466 | 190,553 | ||||||
358,730 | ||||||||
Residential REIT’s–0.3% | ||||||||
Apartment Investment & Management Co. | 5,951 | 121,638 | ||||||
AvalonBay Communities, Inc. | 4,268 | 449,079 | ||||||
Equity Residential | 14,472 | 663,252 | ||||||
1,233,969 | ||||||||
Restaurants–1.3% | ||||||||
Darden Restaurants, Inc. | 7,190 | 296,659 | ||||||
McDonald’s Corp. | 55,025 | 4,020,126 | ||||||
Starbucks Corp. | 38,110 | 876,149 | ||||||
Yum! Brands, Inc. | 23,908 | 996,964 | ||||||
6,189,898 | ||||||||
Retail REIT’s–0.3% | ||||||||
Kimco Realty Corp. | 20,746 | 309,323 | ||||||
Simon Property Group, Inc. | 14,970 | 1,354,036 | ||||||
1,663,359 | ||||||||
Semiconductor Equipment–0.3% | ||||||||
Applied Materials, Inc. | 68,706 | 713,855 | ||||||
KLA-Tencor Corp. | 8,650 | 242,287 | ||||||
MEMC Electronic Materials, Inc.(b) | 11,631 | 119,683 | ||||||
Novellus Systems, Inc.(b) | 4,956 | 115,475 | ||||||
Teradyne, Inc.(b) | 9,190 | 82,526 | ||||||
1,273,826 | ||||||||
Semiconductors–2.0% | ||||||||
Advanced Micro Devices, Inc.(b) | 28,931 | 162,592 | ||||||
Altera Corp. | 15,429 | 380,633 | ||||||
Analog Devices, Inc. | 15,241 | 424,919 | ||||||
Broadcom Corp. (Class A) | 22,089 | 662,007 | ||||||
Intel Corp. | 284,594 | 5,043,006 | ||||||
Linear Technology Corp. | 11,463 | 328,415 | ||||||
LSI Corp.(b) | 33,431 | 134,393 | ||||||
Microchip Technology, Inc. | 9,469 | 262,197 | ||||||
Micron Technology, Inc.(b) | 43,695 | 282,488 | ||||||
National Semiconductor Corp. | 12,175 | 153,527 | ||||||
Nvidia Corp.(b) | 29,267 | 273,061 | ||||||
Texas Instruments, Inc. | 62,515 | 1,439,720 | ||||||
Xilinx, Inc. | 13,238 | 319,698 | ||||||
9,866,656 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Shares | Value | |||||||
Soft Drinks–2.6% | ||||||||
Coca-Cola Co. (The) | 118,003 | $ | 6,598,728 | |||||
Coca-Cola Enterprises, Inc. | 16,637 | 473,489 | ||||||
Dr Pepper Snapple Group, Inc. | 12,565 | 462,643 | ||||||
PepsiCo, Inc. | 82,489 | 5,294,144 | ||||||
12,829,004 | ||||||||
Specialized Consumer Services–0.0% | ||||||||
H&R Block, Inc. | 16,839 | 216,381 | ||||||
Specialized Finance–0.4% | ||||||||
CME Group, Inc. | 3,359 | 833,301 | ||||||
IntercontinentalExchange, Inc.(b) | 3,809 | 363,988 | ||||||
Moody’s Corp. | 10,057 | 212,605 | ||||||
NASDAQ OMX Group, Inc. (The)(b) | 7,455 | 133,519 | ||||||
NYSE Euronext | 13,349 | 370,301 | ||||||
1,913,714 | ||||||||
Specialized REIT’s–0.5% | ||||||||
HCP, Inc. | 15,859 | 558,554 | ||||||
Health Care REIT, Inc. | 6,334 | 290,984 | ||||||
Host Hotels & Resorts, Inc. | 33,666 | 442,034 | ||||||
Plum Creek Timber Co., Inc. | 8,380 | 288,859 | ||||||
Public Storage | 6,948 | 681,043 | ||||||
Ventas, Inc. | 8,059 | 407,060 | ||||||
2,668,534 | ||||||||
Specialty Chemicals–0.3% | ||||||||
Airgas, Inc. | 4,294 | 282,545 | ||||||
Ecolab, Inc. | 11,935 | 565,719 | ||||||
International Flavors & Fragrances, Inc. | 4,086 | 186,689 | ||||||
Sigma-Aldrich Corp. | 6,191 | 329,176 | ||||||
1,364,129 | ||||||||
Specialty Stores–0.2% | ||||||||
CarMax, Inc.(b) | 11,411 | 227,421 | ||||||
Office Depot, Inc.(b) | 14,091 | 48,050 | ||||||
Staples, Inc. | 37,333 | 663,408 | ||||||
Tiffany & Co. | 6,494 | 257,357 | ||||||
1,196,236 | ||||||||
Steel–0.3% | ||||||||
AK Steel Holding Corp. | 5,586 | 71,166 | ||||||
Allegheny Technologies, Inc. | 5,088 | 207,183 | ||||||
Cliffs Natural Resources, Inc. | 6,926 | 423,802 | ||||||
Nucor Corp. | 16,118 | 592,820 | ||||||
United States Steel Corp. | 7,333 | 311,726 | ||||||
1,606,697 | ||||||||
Systems Software–3.2% | ||||||||
BMC Software, Inc.(b) | 9,257 | 333,807 | ||||||
CA, Inc. | 19,975 | 359,750 | ||||||
McAfee, Inc.(b) | 8,014 | 377,059 | ||||||
Microsoft Corp. | 389,989 | 9,156,942 | ||||||
Novell, Inc.(b) | 17,895 | 100,570 | ||||||
Oracle Corp. | 200,243 | 4,381,317 | ||||||
Red Hat, Inc.(b) | 9,632 | 332,785 | ||||||
Symantec Corp.(b) | 40,862 | 556,949 | ||||||
15,599,179 | ||||||||
Thrifts & Mortgage Finance–0.1% | ||||||||
Hudson City Bancorp, Inc. | 24,240 | 279,366 | ||||||
People’s United Financial, Inc. | 19,167 | 243,804 | ||||||
523,170 | ||||||||
Tires & Rubber–0.0% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 12,424 | 114,798 | ||||||
Tobacco–1.7% | ||||||||
Altria Group, Inc. | 106,521 | 2,377,549 | ||||||
Lorillard, Inc. | 7,848 | 596,526 | ||||||
Philip Morris International, Inc. | 94,721 | 4,872,448 | ||||||
Reynolds American, Inc. | 8,600 | 469,044 | ||||||
8,315,567 | ||||||||
Trading Companies & Distributors–0.1% | ||||||||
Fastenal Co. | 6,708 | 303,671 | ||||||
WW Grainger, Inc. | 3,184 | 336,836 | ||||||
640,507 | ||||||||
Trucking–0.0% | ||||||||
Ryder System, Inc. | 2,689 | 103,177 | ||||||
Wireless Telecommunication Services–0.4% | ||||||||
American Tower Corp. (Class A)(b) | 20,634 | 966,909 | ||||||
MetroPCS Communications, Inc.(b) | 13,368 | 119,510 | ||||||
Sprint Nextel Corp.(b) | 152,476 | 622,102 | ||||||
1,708,521 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $490,050,906) | 486,458,301 | |||||||
Money Market Funds–0.7% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,565,248 | 1,565,248 | ||||||
Premier Portfolio–Institutional Class(d) | 1,565,248 | 1,565,248 | ||||||
Total Money Market Funds (Cost $3,130,496) | 3,130,496 | |||||||
TOTAL INVESTMENTS–100.0% (Cost $493,181,402) | 489,588,797 | |||||||
OTHER ASSETS LESS LIABILITIES–0.0% | 197,383 | |||||||
NET ASSETS–100.0% | $ | 489,786,180 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Investment Abbreviation:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See NOTE 1I and NOTE 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Assets and Liabilities
August 31, 2010
Assets: | ||||
Investments, at value (Cost $490,050,906) | $ | 486,458,301 | ||
Investments in affiliated money market funds, at value and cost | 3,130,496 | |||
Total investments, at value (Cost $493,181,402) | 489,588,797 | |||
Receivable for: | ||||
Dividends | 1,520,992 | |||
Variation margin | 14,697 | |||
Fund shares sold | 214,660 | |||
Other Assets | 25,028 | |||
Total assets | 491,364,174 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 1,138,399 | |||
Accrued fees to affiliates | 358,973 | |||
Accrued other operating expenses | 80,622 | |||
Total liabilities | 1,577,994 | |||
Net assets applicable to shares outstanding | $ | 489,786,180 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 570,528,158 | ||
Undistributed net investment income | 5,387,726 | |||
Undistributed net realized gain (loss) | (82,460,143 | ) | ||
Unrealized appreciation (depreciation) | (3,669,561 | ) | ||
$ | 489,786,180 | |||
Net Assets: | ||||
Class A | $ | 335,583,039 | ||
Class B | $ | 64,101,932 | ||
Class C | $ | 66,933,274 | ||
Class Y | $ | 23,167,935 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Class A | 29,533,624 | |||
Class B | 5,774,365 | |||
Class C | 6,092,333 | |||
Class Y | 2,017,695 | |||
Class A: | ||||
Net asset value per share | $ | 11.36 | ||
Maximum offering price per share, | ||||
(Net asset value of $11.36 divided by 94.50%) | $ | 12.02 | ||
Class B: | ||||
Net asset value and offering price per share | $ | 11.10 | ||
Class C: | ||||
Net asset value and offering price per share | $ | 10.99 | ||
Class Y: | ||||
Net asset value and offering price per share | $ | 11.48 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Operations
For the year ended August 31, 2010
Investment income: | ||||
Dividends | $ | 11,511,468 | ||
Dividends from affiliated money market funds | 1,766 | |||
Total investment income | 11,513,234 | |||
Expenses | ||||
Advisory fees | 668,657 | |||
Administrative services fees | 379,042 | |||
Custodian fees | 28,678 | |||
Distribution fees: | ||||
Class A | 912,431 | |||
Class B | 919,427 | |||
Class C | 755,185 | |||
Transfer agent fees | 950,650 | |||
Trustees’ and officers’ fees and benefits | 36,956 | |||
Other | 361,676 | |||
Total expenses | 5,012,702 | |||
Less: Fees waived | (523,795 | ) | ||
Net expenses | 4,488,907 | |||
Net investment income | 7,024,327 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (2,829,899 | ) | ||
Futures contracts | 242,810 | |||
(2,587,089 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 23,647,586 | |||
Futures contracts | (317,913 | ) | ||
23,329,673 | ||||
Net realized and unrealized gain | 20,742,584 | |||
Net increase in net assets resulting from operations | $ | 27,766,911 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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Statement of Changes in Net Assets
For the years ended August 31, 2010 and 2009
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 7,024,327 | $ | 10,052,427 | ||||
Net realized gain (loss) | (2,587,089 | ) | (36,570,308 | ) | ||||
Change in net unrealized appreciation (depreciation) | 23,329,673 | (146,799,390 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 27,766,911 | (173,317,271 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Class A shares | (7,210,852 | ) | (7,399,930 | ) | ||||
Class B shares | (1,207,325 | ) | (1,543,020 | ) | ||||
Class C shares | (1,049,628 | ) | (998,587 | ) | ||||
Class Y shares | (532,217 | ) | (558,487 | ) | ||||
Total distributions from net investment income | (10,000,022 | ) | (10,500,024 | ) | ||||
Net decrease from transactions in shares of beneficial interest | (84,953,972 | ) | (98,923,340 | ) | ||||
Net decrease in net assets | (67,187,083 | ) | (282,740,635 | ) | ||||
Net assets: | ||||||||
Beginning of year | 556,973,263 | 839,713,898 | ||||||
End of year (includes undistributed net investment income of $5,387,492 and $8,473,456, respectively) | $ | 489,786,180 | $ | 556,973,263 | ||||
Notes to Financial Statements
August 31, 2010
NOTE 1—Significant Accounting Policies
Invesco S&P 500 Index Fund (the “Fund”) is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class.
Prior to June 1, 2010, the Fund operated as Morgan Stanley S&P 500 Index Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010, (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class I shares received Class A, Class B, Class C and Class Y shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report.
The Fund’s investment objective is to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the Standard & Poor’s® 500 Composite Stock Price Index.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
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Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
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The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
J. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
Prior to the Reorganization, the Acquired Fund paid at advisory fee of $512,574 to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective at the date of Reorganization, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, and Class Y shares to 0.65%, 1.40%, 1.40% and 0.40%, respectively, of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
Prior to the Reorganization, MSIA had voluntarily agreed to cap operating expenses (except for brokerage and 12b-1 fees) by assuming the Acquired Fund’s “other expenses” and/or waiving the Acquired Fund’s advisory fees, and Morgan Stanly Services Company Inc. (the “Administrator”) had agreed to waive the Acquired Fund’s administrative fees, to the extent such operating expenses exceed 0.34% of the average daily net assets of the Acquired Fund on an annualized basis.
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Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the year ended August 31, 2010, the Adviser and MSIA waived advisory fees of $1,057 and $522,738, respectively.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, the Acquired Fund paid an administration fee of $341,615 to Morgan Stanley Services Company, Inc. For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees.
Also, the Trust has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $751,575 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that the Fund will reimburse IDI for distribution related expenses that IDI incurs up to a maximum of the following annual rates; (1) Class A — up to 0.25% of the average daily net assets of Class A shares; (2) Class B — up to 1.00% of the average daily net assets of Class B shares and (3) Class C — up to 1.00% of the average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by IDI, but not yet reimbursed to IDI may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Morgan Stanley Distributors Inc. (“MSDI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $2,009,749 to MSDI.
For the year ended August 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to August 31, 2010, IDI advised the Fund that IDI retained $4,074 in front-end sales commissions from the sale of Class A shares and $28, $29,438 and $1,212 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. For the period September 1, 2009 to May 31, 2010, MSDI retained $63,474 in front-end sales commissions from the sale of Class A shares and $10,258, $79,703 and $6,643 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of August 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 489,588,797 | $ | — | $ | — | $ | 489,588,797 | ||||||||
Futures* | (76,956 | ) | — | — | (76,956 | ) | ||||||||||
Total Investments | $ | 489,511,841 | $ | — | $ | — | $ | 489,511,841 | ||||||||
* | Unrealized appreciation (depreciation). |
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NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of August 31, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | $ | — | $ | (76,956 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended August 31, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Equity risk | $ | 242,810 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Equity risk | (317,913 | ) | ||
Total | $ | (75,103 | ) | |
* | The average value of futures outstanding during the period was $4,879,547. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
S&P 500 E-Mini | 88 | September 2010 | $ | 4,612,520 | $ | (76,956 | ) | |||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
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NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended August 31, 2010 and 2009:
2010 | 2009 | |||||||
Ordinary income | $ | 10,000,022 | $ | 10,500,024 | ||||
Tax Components of Net Assets at Period-End:
2010 | ||||
Undistributed ordinary income | $ | 5,307,916 | ||
Net unrealized appreciation (depreciation) — investments | (32,328,582 | ) | ||
Post-October deferrals | (1,256,773 | ) | ||
Capital loss carryforward | (52,464,539 | ) | ||
Shares of beneficial interest | 570,528,158 | |||
Total net assets | $ | 489,786,180 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of August 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
August 31, 2012 | $ | 20,294,770 | ||
August 31, 2017 | 12,322,416 | |||
August 31, 2018 | 19,847,353 | |||
Total capital loss carryforward | $ | 52,464,539 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended August 31, 2010 was $40,437,527 and $125,287,807, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 99,368,475 | ||
Aggregate unrealized (depreciation) of investment securities | (131,697,057 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (32,328,582 | ) | |
Cost of investments for tax purposes is $521,917,379. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of real estate investment trust investments, on August 31, 2010, undistributed net investment income was decreased by $110,035, undistributed net realized gain (loss) was increased by $107,240 and shares of beneficial interest increased by $2,795. This reclassification had no effect on the net assets of the Fund.
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NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
For the years ended August 31, | ||||||||||||||||
2010(a) | 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A | ||||||||||||||||
Sold | 3,738,277 | $ | 44,680,433 | 6,646,915 | $ | 64,439,524 | ||||||||||
Conversion from Class B | 645,541 | 7,705,077 | 436,272 | 4,262,377 | ||||||||||||
Reinvestment of dividends | 588,507 | 7,062,080 | 788,953 | 7,274,152 | ||||||||||||
Redeemed | (6,942,030 | ) | (82,784,512 | ) | (8,240,060 | ) | (80,705,634 | ) | ||||||||
Net increase (decrease) — Class A | (1,969,705 | ) | (23,336,922 | ) | (367,920 | ) | (4,729,581 | ) | ||||||||
Class B | ||||||||||||||||
Sold | 156,856 | 1,823,526 | 616,503 | 5,827,518 | ||||||||||||
Conversion to Class A | (660,060 | ) | (7,705,077 | ) | (446,198 | ) | (4,262,377 | ) | ||||||||
Reinvestment of dividends | 97,614 | 1,150,870 | 164,097 | 1,485,074 | ||||||||||||
Redeemed | (3,997,776 | ) | (46,771,647 | ) | (6,211,635 | ) | (59,812,812 | ) | ||||||||
Net increase (decrease) — Class B | (4,403,366 | ) | (51,502,328 | ) | (5,877,233 | ) | (56,762,597 | ) | ||||||||
Class C | ||||||||||||||||
Sold | 324,099 | 3,728,918 | 838,920 | 7,834,836 | ||||||||||||
Reinvestment of dividends | 87,603 | 1,022,327 | 108,883 | 976,681 | ||||||||||||
Redeemed | (1,229,575 | ) | (14,262,349 | ) | (1,767,363 | ) | (16,865,136 | ) | ||||||||
Net increase (decrease) — Class C | (817,873 | ) | (9,511,104 | ) | (819,560 | ) | (8,053,619 | ) | ||||||||
Class Y | ||||||||||||||||
Sold | 164,078 | 1,976,792 | 382,657 | 3,893,883 | ||||||||||||
Reinvestment of dividends | 43,861 | 531,151 | 59,756 | 555,732 | ||||||||||||
Redeemed | (257,580 | ) | (3,111,561 | ) | (3,630,056 | ) | (33,827,158 | ) | ||||||||
Net increase (decrease) — Class Y | (49,641 | ) | (603,618 | ) | (3,187,643 | ) | (29,377,543 | ) | ||||||||
Net increase (decrease) in share activity | (7,240,585 | ) | $ | (84,953,972 | ) | (10,252,356 | ) | $ | (98,923,340 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 77% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Effective November 30, 2010, all Invesco funds will be closing their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert.
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NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Class A | ||||||||||||||||||||
Year ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ | 11.09 | $ | 13.94 | $ | 16.01 | $ | 14.17 | $ | 13.27 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income(a) | 0.18 | 0.21 | 0.23 | 0.21 | 0.18 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (2.83 | ) | (2.05 | ) | 1.85 | 0.91 | |||||||||||||
Total income (loss) from investment operations | 0.51 | (2.62 | ) | (1.82 | ) | 2.06 | 1.09 | |||||||||||||
Less dividends from net investment income | (0.24 | ) | (0.23 | ) | (0.25 | ) | (0.22 | ) | (0.19 | ) | ||||||||||
Net asset value, end of period | $ | 11.36 | $ | 11.09 | $ | 13.94 | $ | 16.01 | $ | 14.17 | ||||||||||
Total return(b) | 4.44 | % | (18.43 | )% | (11.55 | )% | 14.60 | % | 8.24 | % | ||||||||||
Net assets, end of period, in millions(c) | $ | 335,583 | $ | 349 | $ | 444 | $ | 521 | $ | 452 | ||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.60 | %(d) | 0.59 | %(e) | 0.59 | %(e) | 0.58 | %(e) | 0.62 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 0.69 | %(d) | 0.74 | %(e) | 0.66 | %(e) | 0.65 | %(e) | 0.66 | % | ||||||||||
Ratio of net investment income to average net assets | 1.47 | %(d) | 2.11 | %(e)(f) | 1.50 | %(e)(f) | 1.37 | %(e)(f) | 1.32 | %(f) | ||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | ||||||||||||
Supplemental data: | ||||||||||||||||||||
Portfolio turnover(h) | 7 | % | 7 | % | 10 | % | 3 | % | 4 | % | ||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. | |
(c) | Net assets, end of period, for the year ended August 31, 2010 is stated in thousands. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $365,074. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(f) | Ratio of net investment income to average net assets without fee waivers and/or expense reimbursements was 1.96%, 1.43%, 1.30% and 1.28% for the years ended August 31, 2009 through August 31, 2006, respectively. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 11—Financial Highlights—(continued)
Class B | ||||||||||||||||||||
Year ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ | 10.83 | $ | 13.54 | $ | 15.52 | $ | 13.72 | $ | 12.83 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income(a) | 0.08 | 0.13 | 0.11 | 0.09 | 0.07 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (2.73 | ) | (1.99 | ) | 1.79 | 0.87 | |||||||||||||
Total income (loss) from investment operations | 0.41 | (2.60 | ) | (1.88 | ) | 1.88 | 0.94 | |||||||||||||
Less dividends from net investment income | (0.14 | ) | (0.11 | ) | (0.10 | ) | (0.08 | ) | (0.05 | ) | ||||||||||
Net asset value, end of period | $ | 11.10 | $ | 10.83 | $ | 13.54 | $ | 15.52 | $ | 13.72 | ||||||||||
Total return(b) | 3.68 | % | (19.06 | )% | (12.20 | )% | 13.76 | % | 7.35 | % | ||||||||||
Net assets, end of period, in millions(c) | $ | 64,102 | $ | 110 | $ | 217 | $ | 377 | $ | 534 | ||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.35 | %(d) | 1.34 | %(e) | 1.34 | %(e) | 1.34 | %(e) | 1.38 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 1.44 | %(d) | 1.49 | %(e) | 1.41 | %(e) | 1.41 | %(e) | 1.42 | % | ||||||||||
Ratio of net investment income to average net assets | 0.72 | %(d) | 1.36 | %(e)(f) | 0.75 | %(e)(f) | 0.61 | %(e)(f) | 0.56 | %(f) | ||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | ||||||||||||
Supplemental data: | ||||||||||||||||||||
Portfolio turnover(h) | 7 | % | 7 | % | 10 | % | 3 | % | 4 | % | ||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. | |
(c) | Net assets, end of period, for the year ended August 31, 2010 is stated in thousands. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $92,032. | |
(e) | The ratios reflect the rebate of certain Portfolio expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(f) | Ratio of net investment income to average net assets without fee waivers and/or expense reimbursements was 1.21%, 0.68%, 0.54% and 0.52% for the years ended August 31, 2009 through August 31, 2006, respectively. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 11—Financial Highlights—(continued)
Class C | ||||||||||||||||||||
Year ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ | 10.74 | $ | 13.46 | $ | 15.46 | $ | 13.70 | $ | 12.83 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income(a) | 0.08 | 0.13 | 0.11 | 0.09 | 0.08 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (2.72 | ) | (1.98 | ) | 1.78 | 0.87 | |||||||||||||
Total income (loss) from investment operations | 0.41 | (2.59 | ) | (1.87 | ) | 1.87 | 0.95 | |||||||||||||
Less dividends from net investment income | (0.16 | ) | (0.13 | ) | (0.13 | ) | (0.11 | ) | (0.08 | ) | ||||||||||
Net asset value, end of period | $ | 10.99 | $ | 10.74 | $ | 13.46 | $ | 15.46 | $ | 13.70 | ||||||||||
Total return(b) | 3.71 | % | (19.01 | )% | (12.21 | )% | 13.68 | % | 7.45 | % | ||||||||||
Net assets, end of period, in millions(c) | $ | 66,933 | $ | 74 | $ | 104 | $ | 132 | $ | 132 | ||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.35 | %(d) | 1.34 | %(e) | 1.33 | %(e) | 1.33 | %(e) | 1.34 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 1.44 | %(d) | 1.49 | %(e) | 1.40 | %(e) | 1.40 | %(e) | 1.38 | % | ||||||||||
Ratio of net investment income to average net assets | 0.72 | %(d) | 1.36 | %(e)(f) | 0.76 | %(e)(f) | 0.62 | %(e)(f) | 0.60 | %(f) | ||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | ||||||||||||
Supplemental data: | ||||||||||||||||||||
Portfolio turnover(h) | 7 | % | 7 | % | 10 | % | 3 | % | 4 | % | ||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges. | |
(c) | Net assets, end of period, for the year ended August 31, 2010 is stated in thousands. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $75,542. | |
(e) | The ratios reflect the rebate of certain Portfolio expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(f) | Ratio of net investment income to average net assets without fee waivers and/or expense reimbursements was 1.21%, 0.69%, 0.55% and 0.56% for the years ended August 31, 2009 through August 31, 2006, respectively. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
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NOTE 11—Financial Highlights—(continued)
Class Y | ||||||||||||||||||||
Year ended August 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ | 11.20 | $ | 14.09 | $ | 16.17 | $ | 14.31 | $ | 13.40 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income(a) | 0.21 | 0.25 | 0.27 | 0.25 | 0.21 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (2.87 | ) | (2.06 | ) | 1.86 | 0.92 | |||||||||||||
Total income (loss) from investment operations | 0.54 | (2.62 | ) | (1.79 | ) | 2.11 | 1.13 | |||||||||||||
Less dividends from net investment income | (0.26 | ) | (0.27 | ) | (0.29 | ) | (0.25 | ) | (0.22 | ) | ||||||||||
Net asset value, end of period | $ | 11.48 | $ | 11.20 | $ | 14.09 | $ | 16.17 | $ | 14.31 | ||||||||||
Total return(b) | 4.72 | % | (18.22 | )% | (11.28 | )% | 14.86 | % | 8.46 | % | ||||||||||
Net assets, end of period, in millions(c) | $ | 23,168 | $ | 23 | $ | 74 | $ | 96 | $ | 99 | ||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.35 | %(d) | 0.34 | %(e) | 0.34 | %(e) | 0.34 | %(e) | 0.38 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 0.44 | %(d) | 0.49 | %(e) | 0.41 | %(e) | 0.41 | %(e) | 0.42 | % | ||||||||||
Ratio of net investment income to average net assets | 1.72 | %(d) | 2.36 | %(e)(f) | 1.75 | %(e)(f) | 1.61 | %(e)(f) | 1.56 | %(f) | ||||||||||
Rebate from affiliates | — | 0.00 | %(g) | 0.00 | %(g) | 0.00 | %(g) | — | ||||||||||||
Supplemental data: | ||||||||||||||||||||
Portfolio turnover(h) | 7 | % | 7 | % | 10 | % | 3 | % | 4 | % | ||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. | |
(c) | Net assets, end of period, for the year ended August 31, 2010 is stated in thousands. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $24,567. | |
(e) | The ratios reflect the rebate of certain Portfolio expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliates”. | |
(f) | Ratio of net investment income to average net assets without fee waivers and/or expense reimbursements was 2.21%, 1.68%, 1.54% and 1.52% for the years ended August 31, 2009 through August 31, 2006, respectively. | |
(g) | Amount is less than 0.005%. | |
(h) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 12—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Counselor Series Trust (Invesco Counselor Series Trust)
and Shareholders of Invesco S&P 500 Index Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco S&P 500 Index Fund (formerly known as Morgan Stanley S&P 500 Index Fund; one of the funds constituting AIM Counselor Series Trust (Invesco Counselor Series Trust), hereafter referred to as the “Fund”) at August 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of changes in net assets for the year ended August 31, 2009 and the financial highlights of the Fund for the periods ended August 31, 2009 and prior were audited by other independent auditors whose report dated October 27, 2009 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
October 20, 2010
Houston, Texas
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Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments or contingent deferred sales charges on redemptions, and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2010 through August 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (03/01/10) | (08/31/10)1 | Period2 | (08/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
A | $ | 1,000.00 | $ | 957.00 | $ | 2.91 | $ | 1,022.23 | $ | 3.01 | 0.59 | % | ||||||||||||||||||
B | 1,000.00 | 953.60 | 6.60 | 1,018.45 | 6.82 | 1.34 | ||||||||||||||||||||||||
C | 1,000.00 | 954.00 | 6.60 | 1,018.45 | 6.82 | 1.34 | ||||||||||||||||||||||||
I | 1,000.00 | 958.30 | 1.68 | 1,023.49 | 1.73 | 0.34 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period March 1, 2010 through August 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
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Approval of Investment Advisory and Sub-Advisory Agreements |
The Board of Trustees (the Board) of AIM Counselor Series Trust (Invesco Counselor Series Trust) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco S&P 500 Index Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees were fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
34 Invesco S&P 500 Index Fund
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services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
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Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended August 31, 2010:
Federal and State Income Tax | ||||
Qualified Dividend Income* | 100% | |||
Corporate Dividends Received Deduction* | 100% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
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Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley S&P 500 Index Fund was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 22,428,761 | 1,138,106 | 2,501,091 | 0 |
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Trustees and Officers
The address of each trustee and officer is AIM Counselor Series Trust (Invesco Counselor Series Trust) (the “Trust”), 11 Greenway Plaza, Suite 2500, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Interested Persons | ||||||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | 214 | None | ||||||||||
Formerly: Chairman, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | ||||||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Trimark Corporate Class Inc. (corporate mutual fund company) and Invesco Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); and Director, Van Kampen Asset Management; Director, Chief Executive Officer and President, Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Director and Chairman, Van Kampen Investor Services Inc. and Director and President, Van Kampen Advisors, Inc. | 214 | None | ||||||||||
Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||||||
Wayne M. Whalen3 — 1939 Trustee | 2010 | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to funds in the Fund Complex | 232 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) | 214 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | ||||||||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 232 | Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago. Board member of the Illinois Manufacturers’ Association. Member of the Board of Visitors, Institute for the Humanities, University of Michigan | ||||||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. | |
3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Fund Complex. |
T-1
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Bob R. Baker — 1936 Trustee | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 214 | None | ||||||||||
Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 214 | None | ||||||||||
James T. Bunch — 1942 Trustee | 2003 | Founder, Green, Manning & Bunch Ltd. (investment banking firm) Formerly: Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 214 | Vice Chairman, Board of Governors, Western Golf Association/Evans Scholars Foundation and Director, Denver Film Society | ||||||||||
Rodney Dammeyer — 1940 Trustee | 2010 | President of CAC, LLC, a private company offering capital investment and management advisory services. Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Chief Executive Officer of Itel Corporation. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co. | 232 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 214 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 214 | Administaff | ||||||||||
Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||||
Funds in | ||||||||||||||
Fund Complex | ||||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||||
Independent Trustees | ||||||||||||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. | 232 | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences | ||||||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 214 | None | ||||||||||
Other Officers | ||||||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of Invesco Funds | N/A | N/A | ||||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp., Senior Vice President, Invesco Advisers, Inc. formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Van Kampen Asset Management; Director and Secretary, Van Kampen Advisors Inc.; Secretary and General Counsel, Van Kampen Funds Inc.; and Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; and General Counsel, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||||
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Trustees and Officers — (continued)
Number of | ||||||||||||
Funds in | ||||||||||||
Fund Complex | ||||||||||||
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Overseen by | Other Directorship(s) | ||||||||
Position(s) Held with the Trust | or Officer Since | During Past 5 Years | Trustee | Held by Trustee | ||||||||
Other Officers | ||||||||||||
Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 2500 | Invesco Advisers, Inc. | Invesco Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 2500 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the Independent | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Trustees | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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Invesco mailing information
Send general correspondence to Invesco, P.O. Box 4739, Houston, TX 77210-4739.
Invesco privacy policy
You share personal and financial information with us that is necessary for your transactions and your account records. We take very seriously the obligation to keep that information confidential and private.
Invesco collects nonpublic personal information about you from account applications or other forms you complete and from your transactions with us or our affiliates. We do not disclose information about you or our former customers to service providers or other third parties except to the extent necessary to service your account and in other limited circumstances as permitted by law. For example, we use this information to facilitate the delivery of transaction confirmations, financial reports, prospectuses and tax forms.
Even within Invesco, only people involved in the servicing of your accounts and compliance monitoring have access to your information. To ensure the highest level of confidentiality and security, Invesco maintains physical, electronic and procedural safeguards that meet or exceed federal standards. Special measures, such as data encryption and authentication, apply to your communications with us on our website. More detail is available to you at invesco.com/privacy.
Important notice regarding delivery of security holder documents
To reduce Fund expenses, only one copy of most shareholder documents may be mailed to shareholders with multiple accounts at the same address (Householding). Mailing of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact Invesco Investment Services, Inc. at 800 959 4246 or contact your financial institution. We will begin sending you individual copies for each account within 30 days after receiving your request.
Fund holdings and proxy voting information
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is available at invesco.com/completeqtrholdings. Shareholders can also look up the Fund’s Forms N-Q on the SEC website at sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-09913 and 333-36074.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
MS-SPI-AR-1 | Invesco Distributors, Inc. |
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ITEM 2. | CODE OF ETHICS. |
As of the end of the period covered by this report, the Registrant had adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer (“PEO”) and principal financial officer (“PFO”). The Code was amended in June, 2010, to (i) add an individual to Exhibit A and (ii) update the names of certain legal entities. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Trustees has determined that the Registrant has at least one audit committee financial expert serving on its Audit Committee. The Audit Committee financial expert is Raymond Stickel, Jr. Mr. Stickel is “independent” within the meaning of that term as used in Form N-CSR.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Fees Billed by PWC Related to the Registrant
The following information relates to the series funds of the Registrant covered by this report and includes information pertaining to principal accountant fees and services rendered to such funds for the two most recently completed fiscal years or, if shorter, since a fund’s commencement of operations:
Percentage of Fees | ||||||||||||||||
Billed Applicable | Percentage of Fees | |||||||||||||||
to Non-Audit | Billed Applicable to | |||||||||||||||
Services Provided | Non-Audit Services | |||||||||||||||
Fees Billed for | for fiscal year end | Provided for fiscal | ||||||||||||||
Services Rendered | 2010 Pursuant to | Fees Billed for | year end 2009 | |||||||||||||
to the Registrant | Waiver of Pre- | Services Rendered | Pursuant to Waiver | |||||||||||||
for fiscal year end | Approval | to the Registrant for | of Pre-Approval | |||||||||||||
2010 | Requirement(1) | fiscal year end 2009 | Requirement(1) | |||||||||||||
Audit Fees | $ | 557,050 | N/A | $ | 296,296 | N/A | ||||||||||
Audit-Related Fees(2) | $ | 0 | 0 | % | $ | 6,000 | 0 | % | ||||||||
Tax Fees(3) | $ | 121,874 | 0 | % | $ | 59,206 | 0 | % | ||||||||
All Other Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
Total Fees | $ | 678,924 | 0 | % | $ | 361,502 | 0 | % |
PWC billed the Registrant aggregate non-audit fees of $121,874 for the fiscal year ended 2010, and $65,206 for the fiscal year ended 2009, for non-audit services rendered to the Registrant.
(1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant to PWC during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. | |
(2) | Audit-Related Fees for the fiscal year ended August 31, 2009 includes fees billed for completing agreed-upon procedures related to fund mergers. | |
(3) | Tax fees for the fiscal year end August 31, 2010 includes fees billed for reviewing tax returns. Tax fees for the fiscal year end August 31, 2009 includes fees billed for reviewing tax returns and consultation services. |
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Fees Billed by PWC Related to Invesco and Invesco Affiliates
PWC billed Invesco Advisers, Inc. (“Invesco”), the Registrant’s adviser, and any entity controlling, controlled by or under common control with Invesco that provides ongoing services to the Registrant (“Invesco Affiliates”) aggregate fees for pre-approved non-audit services rendered to Invesco and Invesco Affiliates for the last two fiscal years or, if shorter, since a fund’s commencement of operations as follows:
Fees Billed for Non- | Fees Billed for Non- | |||||||||||||||
Audit Services | Audit Services | |||||||||||||||
Rendered to Invesco | Percentage of Fees | Rendered to Invesco | Percentage of Fees | |||||||||||||
and Invesco | Billed Applicable to | and Invesco | Billed Applicable to | |||||||||||||
Affiliates for fiscal | Non-Audit Services | Affiliates for fiscal | Non-Audit Services | |||||||||||||
year end 2010 That | Provided for fiscal | year end 2009 That | Provided for fiscal | |||||||||||||
Were Required | year end 2010 | Were Required | year end 2009 | |||||||||||||
to be Pre-Approved | Pursuant to Waiver | to be Pre-Approved | Pursuant to Waiver | |||||||||||||
by the Registrant’s | of Pre-Approval | by the Registrant’s | of Pre-Approval | |||||||||||||
Audit Committee | Requirement(1) | Audit Committee | Requirement(1) | |||||||||||||
Audit-Related Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
Tax Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
All Other Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
Total Fees(2) | $ | 0 | 0 | % | $ | 0 | 0 | % |
(1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant, Invesco and Invesco Affiliates to PWC during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. | |
(2) | Including the fees for services not required to be pre-approved by the registrant’s audit committee, PWC billed Invesco and Invesco Affiliates aggregate non-audit fees of $0 for the fiscal year ended 2010, and $0 for the fiscal year ended 2009, for non-audit services rendered to Invesco and Invesco Affiliates. | |
The Audit Committee also has considered whether the provision of non-audit services that were rendered to Invesco and Invesco Affiliates that were not required to be pre-approved pursuant to SEC regulations, if any, is compatible with maintaining PWC’s independence. To the extent that such services were provided, the Audit Committee determined that the provision of such services is compatible with PWC maintaining independence with respect to the Registrant. |
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PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the Invesco Funds (the “Funds”)
Last Amended May 4, 2010
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the Invesco Funds (the “Funds”)
Last Amended May 4, 2010
Statement of Principles
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission (“SEC”) (“Rules”), the Audit Committees of the Funds’ (the “Audit Committees”) Board of Trustees (the “Board”) are responsible for the appointment, compensation and oversight of the work of independent accountants (an “Auditor”). As part of this responsibility and to assure that the Auditor’s independence is not impaired, the Audit Committees pre-approve the audit and non-audit services provided to the Funds by each Auditor, as well as all non-audit services provided by the Auditor to the Funds’ investment adviser and to affiliates of the adviser that provide ongoing services to the Funds (“Service Affiliates”) if the services directly impact the Funds’ operations or financial reporting. The SEC Rules also specify the types of services that an Auditor may not provide to its audit client. The following policies and procedures comply with the requirements for pre-approval and provide a mechanism by which management of the Funds may request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations.
Proposed services either may be pre-approved without consideration of specific case-by-case services by the Audit Committees (“general pre-approval”) or require the specific pre-approval of the Audit Committees (“specific pre-approval”). As set forth in these policies and procedures, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committees. Additionally, any fees exceeding 110% of estimated pre-approved fee levels provided at the time the service was pre-approved will also require specific approval by the Audit Committees before payment is made. The Audit Committees will also consider the impact of additional fees on the Auditor’s independence when determining whether to approve any additional fees for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services that may be provided by each Auditor without obtaining specific pre-approval from the Audit Committee generally on an annual basis. The term of any general pre-approval runs from the date of such pre-approval through September 30th of the following year, unless the Audit Committees consider a different period and state otherwise. The Audit Committees will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to assist the Audit Committees in fulfilling their responsibilities.
Delegation
The Audit Committees may from time to time delegate pre-approval authority to one or more of its members who are Independent Trustees. All decisions to pre-approve a service by a delegated member shall be reported to the Audit Committees at the next quarterly meeting.
Audit Services
The annual audit services engagement terms will be subject to specific pre-approval of the Audit Committees. Audit services include the annual financial statement audit and other procedures such as tax provision work that is required to be performed by the independent auditor to be able to form an opinion on the Funds’ financial statements. The Audit Committees will obtain, review and consider sufficient information concerning the proposed Auditor to make a reasonable evaluation of the Auditor’s qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may grant either general or specific pre-approval of other audit services, which are those services that only the independent auditor reasonably can provide. Other Audit services may include services such as issuing consents for the
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inclusion of audited financial statements with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Non-Audit Services
The Audit Committees may provide either general or specific pre-approval of any non-audit services to the Funds and its Service Affiliates if the Audit Committees believe that the provision of the service will not impair the independence of the Auditor, is consistent with the SEC’s Rules on auditor independence, and otherwise conforms to the Audit Committees’ general principles and policies as set forth herein.
Audit-Related Services
“Audit-related services” are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; and agreed-upon procedures related to mergers, compliance with ratings agency requirements and interfund lending activities.
Tax Services
“Tax services” include, but are not limited to, the review and signing of the Funds’ federal tax returns, the review of required distributions by the Funds and consultations regarding tax matters such as the tax treatment of new investments or the impact of new regulations. The Audit Committees will scrutinize carefully the retention of the Auditor in connection with a transaction initially recommended by the Auditor, the major business purpose of which may be tax avoidance or the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committees will consult with the Funds’ Treasurer (or his or her designee) and may consult with outside counsel or advisors as necessary to ensure the consistency of Tax services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Affiliate before a tax court, district court or federal court of claims.
Under rules adopted by the Public Company Accounting Oversight Board and approved by the SEC, in connection with seeking Audit Committees’ pre-approval of permissible Tax services, the Auditor shall:
1. | Describe in writing to the Audit Committees, which writing may be in the form of the proposed engagement letter: |
a. | The scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the Fund, relating to the service; and | ||
b. | Any compensation arrangement or other agreement, such as a referral agreement, a referral fee or fee-sharing arrangement, between the Auditor and any person (other than the Fund) with respect to the promoting, marketing, or recommending of a transaction covered by the service; |
2. | Discuss with the Audit Committees the potential effects of the services on the independence of the Auditor; and | ||
3. | Document the substance of its discussion with the Audit Committees. |
All Other Auditor Services
The Audit Committees may pre-approve non-audit services classified as “All other services” that are not categorically prohibited by the SEC, as listed in Exhibit 1 to this policy.
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Pre-Approval Fee Levels or Established Amounts
Pre-approval of estimated fees or established amounts for services to be provided by the Auditor under general or specific pre-approval policies will be set periodically by the Audit Committees. Any proposed fees exceeding 110% of the maximum estimated pre-approved fees or established amounts for pre-approved audit and non-audit services will be reported to the Audit Committees at the quarterly Audit Committees meeting and will require specific approval by the Audit Committees before payment is made. The Audit Committees will always factor in the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services and in determining whether to approve any additional fees exceeding 110% of the maximum pre-approved fees or established amounts for previously pre-approved services.
Procedures
Generally on an annual basis, Invesco Advisers, Inc. (“Invesco”) will submit to the Audit Committees for general pre-approval, a list of non-audit services that the Funds or Service Affiliates of the Funds may request from the Auditor. The list will describe the non-audit services in reasonable detail and will include an estimated range of fees and such other information as the Audit Committee may request.
Each request for services to be provided by the Auditor under the general pre-approval of the Audit Committees will be submitted to the Funds’ Treasurer (or his or her designee) and must include a detailed description of the services to be rendered. The Treasurer or his or her designee will ensure that such services are included within the list of services that have received the general pre-approval of the Audit Committees. The Audit Committees will be informed at the next quarterly scheduled Audit Committees meeting of any such services for which the Auditor rendered an invoice and whether such services and fees had been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit Committees shall be submitted to the Audit Committees jointly by the Fund’s Treasurer or his or her designee and the Auditor, and must include a joint statement that, in their view, such request is consistent with the policies and procedures and the SEC Rules.
Each request to provide tax services under either the general or specific pre-approval of the Audit Committees will describe in writing: (i) the scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the audit client, relating to the service; and (ii) any compensation arrangement or other agreement between the Auditor and any person (other than the audit client) with respect to the promoting, marketing, or recommending of a transaction covered by the service. The Auditor will discuss with the Audit Committees the potential effects of the services on the Auditor’s independence and will document the substance of the discussion.
Non-audit services pursuant to the de minimis exception provided by the SEC Rules will be promptly brought to the attention of the Audit Committees for approval, including documentation that each of the conditions for this exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the services provided to any entity in the investment company complex as defined in section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of the engagement and the fees associated with those services.
The Audit Committees have designated the Funds’ Treasurer to monitor the performance of all services provided by the Auditor and to ensure such services are in compliance with these policies and procedures. The Funds’ Treasurer will report to the Audit Committees on a periodic basis as to the results of such monitoring. Both the Funds’ Treasurer and management of Invesco will immediately report to the chairman of the Audit Committees any breach of these policies and procedures that comes to the attention of the Funds’ Treasurer or senior management of Invesco.
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Exhibit 1 to Pre-Approval of Audit and Non-Audit Services Policies and Procedures
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can reasonably conclude that the results of the service would not be subject to audit procedures in connection with the audit of the Fund’s financial statements)
• | Bookkeeping or other services related to the accounting records or financial statements of the audit client | ||
• | Financial information systems design and implementation | ||
• | Appraisal or valuation services, fairness opinions, or contribution-in-kind reports | ||
• | Actuarial services | ||
• | Internal audit outsourcing services |
Categorically Prohibited Non-Audit Services
• | Management functions | ||
• | Human resources | ||
• | Broker-dealer, investment adviser, or investment banking services | ||
• | Legal services | ||
• | Expert services unrelated to the audit | ||
• | Any service or product provided for a contingent fee or a commission | ||
• | Services related to marketing, planning, or opining in favor of the tax treatment of confidential transactions or aggressive tax position transactions, a significant purpose of which is tax avoidance | ||
• | Tax services for persons in financial reporting oversight roles at the Fund | ||
• | Any other service that the Public Company Oversight Board determines by regulation is impermissible. |
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
None
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | As of September 16, 2010, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the PEO and PFO, to assess |
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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 September 16, 2010, the Registrant’s disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR 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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12. EXHIBITS.
12(a) (1) | Code of Ethics. | |
12(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. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
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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 (Invesco Counselor Series Trust) |
By: | /s/ Philip A. Taylor | |||
Philip A. Taylor | ||||
Principal Executive Officer | ||||
Date: November 8, 2010
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment 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/ Philip A. Taylor | |||
Philip A. Taylor | ||||
Principal Executive Officer | ||||
Date: November 8, 2010
By: | /s/ Sheri Morris | |||
Sheri Morris | ||||
Principal Financial Officer | ||||
Date: November 8, 2010
EXHIBIT INDEX
12(a)(1) | Code of Ethics. | |
12(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. | |
12(a)(3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |