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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 811-03826
AIM Sector Funds (Invesco Sector Funds)*
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 2500 Houston, Texas 77046
(Address of principal executive offices) (Zip code)
Philip A. Taylor 11 Greenway Plaza, Suite 2500 Houston, Texas 77046
(Name and address of agent for service)
Registrant’s telephone number, including area code: (713) 626-1919
Date of fiscal year end: 7/31
Date of reporting period: 7/31/10
* Fund included is Invesco Special Value Fund.
| Annual Report to Shareholders July 31, 2010 Invesco Special 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 20 Financial Highlights 24 Auditor’s Report 25 Fund Expenses 26 Approval of Investment Advisory and Sub-Advisory Agreements 28 Tax Information 29 Results of Proxy T-1 Trustees and Officers |
Letters to Shareholders
Philip Taylor
Dear Shareholders:
I’m pleased to present this report on your Fund’s performance for the 12 months ended July 31, 2010. 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.
At Invesco, we’re committed to providing you with timely information about market conditions, answering questions you may have about your investments and offering outstanding customer service. At our website, invesco.com/us, you can obtain unique market perspectives, useful investor education information and your Fund’s most recent quarterly commentary.
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 Special Value Fund |
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 Special Value Fund |
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 Special Value Fund was reorganized into Invesco Special Value Fund. On June 25, 2010, R. Canon Coleman II, Jonathan Edwards and Jonathan Mueller were added to the portfolio management team. On July 30, 2010, Richard Glass and Alexander Yaggy left the team. A listing of your Fund’s managers appears later in this report.
For the fiscal year ended July 31, 2010, Class A shares of Invesco Special Value Fund, at net asset value, performed essentially in line with the Russell 2000 Value Index and the Lipper Small-Cap Value Funds Index.
The Fund’s performance benefited the most from stock selection in the information technology sector. Alternatively, stock selection in the industrials sector was the largest detractor from relative performance during the period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 7/31/09 to 7/31/10, 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 | 20.41 | % | ||
| Class B Shares | 19.47 | |||
| Class C Shares | 19.42 | |||
| Class Y Shares* | 20.58 | |||
Russell 2000 Value Index▼ (Broad Market/Style Specific Index) | 20.11 | |||
Lipper Small-Cap Value Funds Index▼ (Peer Group Index) | 21.11 | |||
▼ Lipper Inc. | ||||
How we invest
As noted above, at the end of the reporting period the Fund’s management team was changed. The new team seeks to create wealth by maintaining a long-term investment horizon and investing in companies that are selling at a significant discount to their estimated intrinsic value. We believe intrinsic value represents the inherent business value of portfolio holdings during a two-to three year investment horizon based on our estimates of future cash flow.1
The Fund’s philosophy is based on key elements that we believe have extensive empirical evidence:
| n | Company intrinsic values can be reasonably estimated. Importantly, this estimated fair business value is independent of the company’s stock price. |
| n | Market prices are more volatile than business values, partly because investors regularly overreact to negative news. | |
| n | Long-term investment results are a function of the level and growth of business value in the portfolio. |
We will sell stocks for three primary reasons: a more attractive investment opportunity presents itself; a stock is trading significantly above our estimate of intrinsic value; and a fundamental deterioration results in a reduction in intrinsic value with inadequate upside potential or unexpected deterioration in financial strength.
Since our application of this strategy is highly disciplined and relatively unique, it is important to understand the benefits and limitations of our process. First, the
investment strategy is intended to preserve your capital while growing it at above-market rates over the long term. Second, our investments have little in common with popular stock market indexes and most of our peers. And third, the Fund’s short-term relative performance will naturally be different than the stock market and peers and have little information value since we simply don’t own the same stocks.
Market conditions and your Fund
U.S. gross domestic product – the broadest measure of the nation’s total economic activity – experienced steep declines during 2008, but the U.S. economy finally began to show signs that the economic contraction was moderating, and equity markets rapidly reversed direction beginning in March 2009. This stock market rally persisted through the first quarter of 2010 but came to a halt in late April, ending the second quarter in negative territory.
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 correction that occurred in May and June 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.
All sectors posted positive performance for the reporting period as equity markets rallied through the first quarter
| 1 | Intrinsic value calculations are estimates and, as a result, market price may never reflect intrinsic value estimates, especially for an entire portfolio. |
Portfolio Composition
By sector
| Industrials | 22.0 | % | ||
| Information Technology | 19.8 | |||
| Financials | 18.2 | |||
| Health Care | 8.6 | |||
| Materials | 8.3 | |||
| Consumer Discretionary | 7.0 | |||
| Consumer Staples | 3.8 | |||
| Utilities | 3.2 | |||
| Energy | 2.4 | |||
| Telecommunication Services | 2.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.5 | |||
Top 10 Equity Holdings*
| 1. | MAXIMUS, Inc. | 3.4 | % | |||||
| 2. | HealthSouth Corp. | 3.1 | ||||||
| 3. | AreCap Holdings N.V. | 3.1 | ||||||
| 4. | ProAssurance Corp. | 2.4 | ||||||
| 5. | Zep, Inc. | 2.3 | ||||||
| 6. | Syniverse Holdings, Inc. | 2.2 | ||||||
| 7. | Checkpoint Systems, Inc. | 2.1 | ||||||
| 8. | Corn Products International, Inc. | 2.1 | ||||||
| 9. | AAR Corp. | 2.0 | ||||||
| 10. | Platinum Underwriters Holdings Ltd. | 1.9 | ||||||
| Total Net Assets | $321.8 million | |
| Total Number of Holdings* | 81 |
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 Special Value Fund |
of 2010. All investment styles also posted positive returns.1 Within the small cap category, as represented by the Russell 2000 Index, value stocks outperformed growth stocks.1
In this environment, the Fund, at net asset value, performed essentially in line with its broad market and style-specific index. Fund holdings in the software and services industry performed particularly well. The stock price of business services company MAXIMUS rose during the period and was among the largest contributors to Fund performance. The company provides program management and consulting services to government health and human services agencies in the U.S. The Fund also benefited from good relative performance in the financials sector. Specifically, the Fund’s underweight position in banks helped relative performance as did a position in CNO Financial Group, an insurance company that posted a double-digit gain during the period.2 Health care company Perrigo was the single-largest contributor to Fund performance. Perrigo is a dominant supplier of store-brand, over the counter drugs to large pharmaceutical chains. Before the end of the fiscal year we sold our holdings in Perrigo.
The industrials sector was a large detractor from relative performance during the period. Specifically, Orion Marine Group was among the largest detractors from Fund performance. Orion Marine Group is a leading heavy civil marine contractor providing a range of marine construction services.
The consumer staples and materials sectors also detracted from performance versus the Russell 2000 Value Index.
Consumer staples company Cott was among the largest detractors from Fund performance during the period. Cott produces and distributes a variety of private-label beverages worldwide. Health care company PharMercia was the single-largest detractor from performance during the period. PharMerica is a pharmaceutical services company serving patients and residents in hospital and long-term care settings. The company’s stock price declined by 37% during the period.2 Finally, the Fund’s small cash position detracted from relative performance in a rising market environment.
We intend to work hard to try to protect and grow the Fund’s estimated intrinsic value. We thank you for your investment in Invesco Special Value Fund and for sharing our long-term investment perspective.
1 Lipper Inc.
2 Bloomberg LP
2 Bloomberg LP
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.
R. Canon Coleman II
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Special Value Fund. He joined Invesco in 1999. Mr. Coleman earned a B.S. and M.S. in accounting from the University of Florida. He also earned an M.B.A. from the Wharton School at the University of Pennsylvania.
Jonathan Edwards
Portfolio manager, is manager of Invesco Special Value Fund. He joined Invesco in 2001. Mr. Edwards earned a B.S. in economics from Texas A&M University. He also earned an M.B.A. from the McCombs School of Business at The University of Texas at Austin.
Jonathan Mueller
Chartered Financial Analyst, portfolio manager, is manager of Invesco Special Value Fund. He joined Invesco in 2001. Mr. Mueller earned a B.B.A. in accounting from Texas Christian University. He also earned an M.B.A. from The McCombs School of Business at The University of Texas at Austin. He is also a Certified Public Accountant.
| 5 | Invesco Special Value Fund |
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class Since Inception
Fund data from 10/29/96, index data from 10/31/96
| 1 | Lipper Inc. |
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 Special Value Fund |
| Average Annual Total Returns | ||||
| As of 7/31/10, including maximum applicable sales charges | ||||
Class A Shares | ||||
| Inception (7/28/97) | 8.35 | % | ||
| 10 Years | 9.18 | |||
| 5 Years | 3.91 | |||
| 1 Year | 13.76 | |||
Class B Shares | ||||
| Inception (10/29/96) | 9.41 | % | ||
| 10 Years | 9.13 | |||
| 5 Years | 4.14 | |||
| 1 Year | 14.47 | |||
Class C Shares | ||||
| Inception (7/28/97) | 8.02 | % | ||
| 10 Years | 8.98 | |||
| 5 Years | 4.30 | |||
| 1 Year | 18.42 | |||
Class Y Shares | ||||
| Inception (7/28/97) | 9.07 | % | ||
| 10 Years | 10.06 | |||
| 5 Years | 5.36 | |||
| 1 Year | 20.58 | |||
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 Special 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 Special 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.
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
| 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) | 7.90 | % | ||
| 10 Years | 8.78 | |||
| 5 Years | 3.65 | |||
| 1 Year | 17.30 | |||
Class B Shares | ||||
| Inception (10/29/96) | 8.99 | % | ||
| 10 Years | 8.75 | |||
| 5 Years | 3.89 | |||
| 1 Year | 18.31 | |||
Class C Shares | ||||
| Inception (7/28/97) | 7.58 | % | ||
| 10 Years | 8.59 | |||
| 5 Years | 4.05 | |||
| 1 Year | 22.25 | |||
Class Y Shares | ||||
| Inception (7/28/97) | 8.63 | % | ||
| 10 Years | 9.67 | |||
| 5 Years | 5.10 | |||
| 1 Year | 24.47 | |||
C and Class Y shares was 1.32%, 2.07%, 2.07% and 1.07%, 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.
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 Special Value Fund |
Invesco Special Value Fund’s investment objective is long-term capital appreciation.
| n | Unless otherwise stated, information presented in this report is as of July 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 | Small capitalization companies often have less predictable earnings, more limited product line, markets, distribution channels or financial resources and the management of such companies may be dependent upon one or 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 | 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 underpriced. |
| n | Investments in foreign markets entail special risks such as currency, political, economic and market risks. There also may be greater market volatility, less reliable financial information, higher transaction and custody costs, decreased market liquidity and less government and exchange regulation associated with investments in foreign markets. | |
| 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 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. |
About indexes used in this report
| n | The Russell 2000® Value Index is an unmanaged index considered representative of small-cap value stocks. The Russell 2000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |
| n | The Lipper Small-Cap Value Funds Index is an unmanaged index considered representative of small-cap value funds tracked by Lipper. | |
| n | The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 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 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 | SVFAX | |
| Class B Shares | SVFBX | |
| Class C Shares | SVFCX | |
| Class Y Shares | SVFDX |
| 8 | Invesco Special Value Fund |
Schedule of Investments(a)
July 31, 2010
| Shares | Value | |||||||
| Common Stocks & Other Equity Interests–94.4% | ||||||||
| Aerospace & Defense–8.3% | ||||||||
AAR Corp.(b) | 395,380 | $ | 6,642,384 | |||||
AerCap Holdings N.V.(b) | 758,300 | 9,873,066 | ||||||
| HEICO Corp–Class A | 31,375 | 906,110 | ||||||
Moog, Inc.–Class A(b) | 131,300 | 4,701,853 | ||||||
Spirit Aerosystems Holdings, Inc.–Class A(b) | 219,000 | 4,456,650 | ||||||
| 26,580,063 | ||||||||
| Agricultural Products–2.1% | ||||||||
| Corn Products International, Inc. | 200,400 | 6,681,336 | ||||||
| Air Freight & Logistics–2.5% | ||||||||
| Forward Air Corp. | 148,900 | 4,324,056 | ||||||
| UTI Worldwide, Inc. (Luxembourg) | 265,200 | 3,874,572 | ||||||
| 8,198,628 | ||||||||
| Apparel Retail–0.7% | ||||||||
| Stage Stores, Inc. | 196,150 | 2,157,650 | ||||||
| Apparel, Accessories & Luxury Goods–1.4% | ||||||||
Maidenform Brands, Inc.(b) | 177,435 | 4,405,711 | ||||||
| Commercial Printing–0.9% | ||||||||
| Deluxe Corp. | 148,500 | 3,056,130 | ||||||
| Communications Equipment–2.9% | ||||||||
| ADTRAN, Inc. | 174,600 | 5,513,868 | ||||||
Tekelec(b) | 265,100 | 3,748,514 | ||||||
| 9,262,382 | ||||||||
| Computer Storage & Peripherals–0.8% | ||||||||
QLogic Corp.(b) | 169,200 | 2,693,664 | ||||||
| Construction & Engineering–1.8% | ||||||||
Aecom Technology Corp.(b) | 78,000 | 1,882,920 | ||||||
Insituform Technologies, Inc.–Class A(b) | 81,000 | 1,854,900 | ||||||
Orion Marine Group, Inc.(b) | 174,593 | 2,168,445 | ||||||
| 5,906,265 | ||||||||
| Construction Materials–1.1% | ||||||||
| AMCOL International Corp. | 114,500 | 3,430,420 | ||||||
| Data Processing & Outsourced Services–0.8% | ||||||||
| Broadridge Financial Solutions, Inc. | 124,200 | 2,521,260 | ||||||
| Distributors–0.8% | ||||||||
Scansource, Inc.(b) | 97,235 | 2,681,741 | ||||||
| Diversified Banks–1.3% | ||||||||
| BancorpSouth, Inc. | 118,500 | 1,737,210 | ||||||
| Northwest Bancshares, Inc. | 203,147 | 2,464,173 | ||||||
| 4,201,383 | ||||||||
| Electric Utilities–1.2% | ||||||||
| Allete, Inc. | 104,900 | 3,782,694 | ||||||
| Electrical Components & Equipment–1.9% | ||||||||
| Belden, Inc. | 124,100 | 2,964,749 | ||||||
Polypore International, Inc.(b) | 124,009 | 3,045,661 | ||||||
| 6,010,410 | ||||||||
| Electronic Equipment & Instruments–3.5% | ||||||||
Checkpoint Systems, Inc.(b) | 338,300 | 6,755,851 | ||||||
Rogers Corp.(b) | 149,242 | 4,619,040 | ||||||
| 11,374,891 | ||||||||
| Electronic Manufacturing Services–1.0% | ||||||||
| Methode Electronics, Inc. | 310,300 | 3,314,004 | ||||||
| Environmental & Facilities Services–0.5% | ||||||||
Calgon Carbon Corp.(b) | 122,900 | 1,627,196 | ||||||
| Gas Utilities–0.9% | ||||||||
| UGI Corp. | 107,100 | 2,887,416 | ||||||
| Health Care Distributors–1.6% | ||||||||
PharMerica Corp.(b) | 399,300 | 5,214,858 | ||||||
| Health Care Equipment–1.4% | ||||||||
| Hill-Rom Holdings, Inc. | 64,400 | 2,127,776 | ||||||
ICU Medical, Inc.(b) | 66,028 | 2,456,902 | ||||||
| 4,584,678 | ||||||||
| Health Care Facilities–3.1% | ||||||||
Healthsouth Corp.(b) | 535,700 | 9,915,807 | ||||||
| Household Appliances–0.9% | ||||||||
| Snap-On, Inc. | 62,600 | 2,796,342 | ||||||
| Household Products–1.0% | ||||||||
Central Garden and Pet Co.(b) | 212,266 | 2,209,689 | ||||||
Central Garden and Pet Co.–Class A(b) | 105,888 | 1,070,528 | ||||||
| 3,280,217 | ||||||||
| Human Resource & Employment Services–1.1% | ||||||||
| Administaff, Inc. | 139,300 | 3,630,158 | ||||||
| Industrial Machinery–0.7% | ||||||||
| John Bean Technologies Corp. | 147,800 | 2,321,938 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Special Value Fund
| Shares | Value | |||||||
| IT Consulting & Other Services–6.2% | ||||||||
Acxiom Corp.(b) | 390,800 | $ | 5,994,872 | |||||
Gartner, Inc.(b) | 62,700 | 1,578,159 | ||||||
| MAXIMUS, Inc. | 181,720 | 10,937,727 | ||||||
Ness Technologies, Inc.(b) | 300,000 | 1,341,000 | ||||||
| 19,851,758 | ||||||||
| Life & Health Insurance–1.8% | ||||||||
CNO Financial Group, Inc.(b) | 1,079,200 | 5,795,304 | ||||||
| Life Sciences Tools & Services–2.5% | ||||||||
Bio-Rad Laboratories, Inc.–Class A(b) | 44,440 | 3,946,272 | ||||||
ICON PLC–ADR (Ireland)(b) | 169,700 | 4,004,920 | ||||||
| 7,951,192 | ||||||||
| Metal & Glass Containers–2.1% | ||||||||
Pactiv Corp.(b) | 117,000 | 3,559,140 | ||||||
| Silgan Holdings, Inc. | 113,462 | 3,224,590 | ||||||
| 6,783,730 | ||||||||
| Motorcycle Manufacturers–1.3% | ||||||||
| Polaris Industries, Inc. | 69,400 | 4,143,180 | ||||||
| Multi-Sector Holdings–1.5% | ||||||||
| Arbitron, Inc. | 161,900 | 4,678,910 | ||||||
| Multi-Utilities–1.1% | ||||||||
| Avista Corp. | 169,800 | 3,552,216 | ||||||
| Office Electronics–1.2% | ||||||||
Zebra Technologies Corp.–Class A(b) | 142,190 | 3,901,694 | ||||||
| Office Services & Supplies–1.0% | ||||||||
ACCO Brands Corp.(b) | 516,610 | 3,058,331 | ||||||
| Oil & Gas Equipment & Services–2.4% | ||||||||
Exterran Holdings, Inc.(b) | 118,272 | 3,154,314 | ||||||
Superior Energy Services, Inc.(b) | 200,070 | 4,559,595 | ||||||
| 7,713,909 | ||||||||
| Paper Packaging–1.4% | ||||||||
| Rock-Tenn Co.–Class A | 85,542 | 4,552,545 | ||||||
| Property & Casualty Insurance–6.2% | ||||||||
| Amtrust Financial Services, Inc. | 244,600 | 3,138,218 | ||||||
| Argo Group International Holdings, Ltd. | 162,300 | 5,054,022 | ||||||
| Employers Holdings, Inc. | 260,900 | 4,054,386 | ||||||
ProAssurance Corp.(b) | 128,086 | 7,622,398 | ||||||
| 19,869,024 | ||||||||
| Publishing–0.8% | ||||||||
Dolan Media Co.(b) | 232,500 | 2,717,925 | ||||||
| Real Estate Development–0.5% | ||||||||
Forestar Group, Inc.(b) | 94,796 | 1,527,164 | ||||||
| Real Estate Services–0.1% | ||||||||
Kennedy-Wilson Holdings, Inc.(b) | 33,200 | 329,676 | ||||||
| Regional Banks–0.7% | ||||||||
| MB Financial, Inc. | 138,974 | 2,409,809 | ||||||
| Reinsurance–4.4% | ||||||||
| Alterra Capital Holdings, Ltd. (Bermuda) | 249,700 | 4,831,695 | ||||||
| Platinum Underwriters Holdings Ltd. (Bermuda) | 166,900 | 6,522,452 | ||||||
| Reinsurance Group of America, Inc. | 58,400 | 2,802,032 | ||||||
| 14,156,179 | ||||||||
| Research & Consulting Services–1.0% | ||||||||
Stantec, Inc.(b) | 138,500 | 3,268,600 | ||||||
| Restaurants–2.2% | ||||||||
AFC Enterprises, Inc.(b) | 227,600 | 2,155,372 | ||||||
Denny’s Corp.(b) | 990,899 | 2,655,609 | ||||||
Texas Roadhouse, Inc.(b) | 176,100 | 2,373,828 | ||||||
| 7,184,809 | ||||||||
| Security & Alarm Services–1.0% | ||||||||
| Brink’s Co. (The) | 150,000 | 3,285,000 | ||||||
| Semiconductors–1.4% | ||||||||
Microsemi Corp.(b) | 286,800 | 4,577,328 | ||||||
| Soft Drinks–0.8% | ||||||||
Cott Corp. (Canada)(b) | 411,200 | 2,442,528 | ||||||
| Specialized REIT’s–1.7% | ||||||||
| Potlatch Corp. | 148,600 | 5,507,116 | ||||||
| Specialty Chemicals–3.2% | ||||||||
| A Schulman, Inc. | 148,400 | 2,907,156 | ||||||
| Zep, Inc. | 388,265 | 7,392,566 | ||||||
| 10,299,722 | ||||||||
| Thrifts & Mortgage Finance–1.5% | ||||||||
| First Niagara Financial Group, Inc. | 166,600 | 2,234,106 | ||||||
| Provident New York Bancorp | 266,852 | 2,476,387 | ||||||
| 4,710,493 | ||||||||
| Wireless Telecommunication Services–2.2% | ||||||||
Syniverse Holdings, Inc.(b) | 317,386 | 7,087,229 | ||||||
| Total Common Stocks & Other Equity Interests (Cost $241,969,863) | 303,872,613 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Special Value Fund
| Principal | ||||||||
| Amount | Value | |||||||
| Convertible Bonds–1.1% | ||||||||
| Enterprise Software/Service–1.1% | ||||||||
| Epicor Software Corp., 2.375%, 05/15/27 (Cost $3,491,729) | $ | 3,827,000 | $ | 3,429,949 | ||||
| Shares | ||||||||
| Money Market Funds–4.5% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 7,299,808 | 7,299,808 | ||||||
Premier Portfolio–Institutional Class(c) | 7,299,808 | 7,299,808 | ||||||
| Total Money Market Funds (Cost $14,599,616) | 14,599,616 | |||||||
| TOTAL INVESTMENTS–100.0% (Cost $260,061,208) | 321,902,178 | |||||||
| OTHER ASSETS LESS LIABILITIES–0.0% | (118,604 | ) | ||||||
| NET ASSETS–100.0% | $ | 321,783,574 | ||||||
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. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Special Value Fund
Statement of Assets and Liabilities
July 31, 2010
| Assets: | ||||
| Investments, at value (Cost $245,461,592) | $ | 307,302,562 | ||
| Investments in affiliated money market funds, at value and cost | 14,599,616 | |||
| Total investments, at value (Cost $260,061,208) | 321,902,178 | |||
| Receivable for: | ||||
| Dividends and interest | 134,043 | |||
| Fund shares sold | 674,739 | |||
| Other Assets | 19,284 | |||
| Total assets | 322,730,244 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Fund shares reacquired | 698,999 | |||
| Accrued fees to affiliates | 154,810 | |||
| Accrued other operating expenses | 92,861 | |||
| Total liabilities | 946,670 | |||
| Net assets applicable to shares outstanding | $ | 321,783,574 | ||
| Net assets consist of: | ||||
| Shares of beneficial interest | $ | 284,448,131 | ||
| Undistributed net investment gain (loss) | — | |||
| Undistributed net realized gain (loss) | (24,505,527 | ) | ||
| Unrealized appreciation | 61,840,970 | |||
| $ | 321,783,574 | |||
| Net Assets: | ||||
| Class A | $ | 270,338,382 | ||
| Class B | $ | 27,268,519 | ||
| Class C | $ | 21,315,440 | ||
| Class Y | $ | 2,861,233 | ||
| Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
| Class A | 22,313,613 | |||
| Class B | 2,760,458 | |||
| Class C | 2,153,311 | |||
| Class Y | 222,688 | |||
| Class A: | ||||
| Net asset value per share | $ | 12.12 | ||
| Maximum offering price per share (net asset value of $12.12 divided by 94.50%) | $ | 12.83 | ||
| Class B: | ||||
| Net asset value and offering price per share | $ | 9.88 | ||
| Class C: | ||||
| Net asset value and offering price per share | $ | 9.90 | ||
| Class Y: | ||||
| Net asset value and offering price per share | $ | 12.85 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Special Value Fund
Statement of Operations
For the year ended July 31, 2010
| Investment income: | ||||
| Dividends | $ | 2,978,350 | ||
| Dividends from affiliated money market funds | 17,726 | |||
| Interest | 107,132 | |||
| Total investment income | 3,103,208 | |||
| Expenses: | ||||
| Advisory fees | 2,116,968 | |||
| Administrative services fees | 227,646 | |||
| Custodian fees | 15,944 | |||
| Distribution fees: | ||||
| Class A | 624,216 | |||
| Class B | 444,134 | |||
| Class C | 197,486 | |||
| Transfer agent fees | 536,877 | |||
| Trustees’ and officers’ fees and benefits | 14,427 | |||
| Other | 212,387 | |||
| Total expenses | 4,390,085 | |||
| Less: Fees waived | (17,589 | ) | ||
| Net expenses | 4,372,496 | |||
| Net investment loss gain (losses) | (1,269,288 | ) | ||
| Realized and unrealized gain (loss) from: | ||||
| Net realized gain from investment securities (includes net gains from securities sold to affiliates of $50,175) | 26,700,925 | |||
| Net change in unrealized appreciation of investment securities | 30,822,493 | |||
| Net realized and unrealized gain | 57,523,418 | |||
| Net increase in net assets resulting from operations | $ | 56,254,130 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Special Value Fund
Statement of Changes in Net Assets
For the year ended July 31, 2010 and the year ended July 31, 2009
| July 31, | July 31, | |||||||
| 2010 | 2009 | |||||||
| Operations: | ||||||||
| Net investment income (loss) | $ | (1,269,288 | ) | $ | 955,185 | |||
| Net realized gain (loss) | 26,700,925 | (44,622,199 | ) | |||||
| Change in net unrealized appreciation (depreciation) | 30,822,493 | (16,054,596 | ) | |||||
| Net increase (decrease) in net assets resulting from operations | 56,254,130 | (59,721,610 | ) | |||||
| Distributions to shareholders from net investment income: | ||||||||
| Class A shares | (811,520 | ) | — | |||||
| Class Y shares | (8,959 | ) | — | |||||
| Total distributions from net investment income | (820,479 | ) | — | |||||
| Distributions to shareholders from net realized gains: | ||||||||
| Class A shares | — | (20,619,167 | ) | |||||
| Class B shares | — | (10,268,497 | ) | |||||
| Class C shares | — | (2,233,834 | ) | |||||
| Class Y shares | — | (186,134 | ) | |||||
| Total distributions from net realized gains | — | (33,307,632 | ) | |||||
| Net increase (decrease) from net assets resulting from share transactions | (16,055,975 | ) | (42,583,198 | ) | ||||
| Net increase (decrease) in net assets | 39,377,676 | (135,612,440 | ) | |||||
| Net Assets: | ||||||||
| Beginning of year | 282,405,898 | 418,018,338 | ||||||
| End of year (includes net investment gain of $0 and undistributed net investment income of $819,554, respectively) | $ | 321,783,574 | $ | 282,405,898 | ||||
Notes to Financial Statements
July 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Special Value Fund (the “Fund”) is a series portfolio of AIM Sector Funds (Invesco Sector Funds), formerly AIM Sector Funds, (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-four 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 Special Value Fund (the “Acquired Fund”), an investment portfolio of Morgan Stanley Advisors 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 A shares received Class A shares of the Fund; holders of the Acquired Fund’s Class B and Class C 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 I shares prior to the Reorganization is included with Class Y shares 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 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 |
14 Invesco Special Value Fund
| 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 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. |
15 Invesco Special Value Fund
| 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 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. |
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% | ||
| Next $500 million | 0 | .645% | ||
| Over $1 billion | 0 | .62% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $1,763,212 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 Reorganization date, the Adviser had 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 1.34%, 2.09%, 2.09%, and 1.09%, 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 in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the 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 July 31, 2010, the Adviser and MSIA waived advisory fees of $1,768 and $15,821, 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 $210,533 to Morgan Stanley Services Company Inc. For the year ended July 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.
16 Invesco Special Value 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 $476,921 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the year ended July 31, 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 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 $1,077,751 to MSDI. For the year ended July 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 July 31, 2010, IDI advised the Fund that IDI retained $806 in front-end sales commissions from the sale of Class A shares and $55, $4,286 and $237 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. Prior to June 1, 2010, MSDI retained $104,164 in front-end sales commissions from the sale of Class A shares and $8,788, $14,494 and $226 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 July 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 | $ | 318,472,229 | $ | — | $ | — | $ | 318,472,229 | ||||||||
| Corporate Debt Securities | — | 3,429,949 | — | 3,429,949 | ||||||||||||
| Total Investments | $ | 318,472,229 | $ | 3,429,949 | $ | — | $ | 321,902,178 | ||||||||
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 July 31, 2010, the Fund engaged in securities sales of $817,815, which resulted in net realized gains of $50,175.
17 Invesco Special Value Fund
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 Years Ended July 31, 2010 and 2009:
| 2010 | 2009 | |||||||
| Ordinary income | $ | 820,479 | $ | 58,642 | ||||
| Long-term capital gain | — | 33,248,990 | ||||||
| Total distributions | $ | 820,479 | $ | 33,307,632 | ||||
Tax Components of Net Assets at Period-End:
| 2010 | ||||
| Net unrealized appreciation — investments | 53,691,143 | |||
| Capital loss carryforward | (16,355,700 | ) | ||
| Shares of beneficial interest | 284,448,131 | |||
| Total net assets | $ | 321,783,574 | ||
As of July 31, 2010, the Fund had a net capital loss carryforward of $16,355,700, to offset future capital gains to the extent provided by regulations, which will expire according to the following schedule.
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 July 31, 2010 which expires as follows:
| Capital Loss | ||||
| Expiration | Carryforward* | |||
| July 31, 2017 | $ | 8,507,371 | ||
| July 31, 2018 | 7,848,329 | |||
| Total capital loss carryforward | $ | 16,355,700 | ||
| * | 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 July 31, 2010 was $86,464,859 and $105,601,940, 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 | $ | 63,924,200 | ||
| Aggregate unrealized (depreciation) of investment securities | (10,233,057 | ) | ||
| Net unrealized appreciation of investment securities | $ | 53,691,143 | ||
| Cost of investments for tax purposes is $268,211,035. | ||||
18 Invesco Special Value Fund
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses of the fund, on July 31, 2010, undistributed net investment income was increased by $1,270,213, undistributed net realized gain (loss) was decreased by $7 and shares of beneficial interest decreased by $1,270,206. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
| Summary of Share Activity | ||||||||||||||||
| Year ended | Year ended | |||||||||||||||
| July 31, 2010(a) | July 31, 2009 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class A | ||||||||||||||||
| Sold | 6,602,427 | $ | 76,098,544 | 5,014,184 | $ | 45,580,854 | ||||||||||
| Conversion from Class B | 451,279 | 5,298,191 | 317,743 | 2,917,785 | ||||||||||||
| Reinvestment of dividends and distributions | 71,997 | 797,725 | 2,651,243 | 20,361,545 | ||||||||||||
| Redeemed | (5,022,690 | ) | (58,217,920 | ) | (6,642,326 | ) | (59,584,672 | ) | ||||||||
| Net increase (decrease) | 2,103,013 | 23,976,540 | 1,340,844 | 9,275,512 | ||||||||||||
| Class B | ||||||||||||||||
| Sold | 172,815 | 1,620,080 | 220,111 | 1,698,555 | ||||||||||||
| Conversion to Class A | (552,242 | ) | (5,298,191 | ) | (384,314 | ) | (2,917,785 | ) | ||||||||
| Reinvestment of dividends and distributions | — | — | 1,581,847 | 9,997,273 | ||||||||||||
| Redeemed | (4,085,791 | ) | (38,534,445 | ) | (4,887,341 | ) | (37,143,961 | ) | ||||||||
| Net increase (decrease) | (4,465,218 | ) | (42,212,556 | ) | (3,469,697 | ) | (28,365,918 | ) | ||||||||
| Class C | ||||||||||||||||
| Sold | 548,232 | 5,313,446 | 218,034 | 1,641,083 | ||||||||||||
| Reinvestment of dividends and distributions | — | — | 341,191 | 2,159,739 | ||||||||||||
| Redeemed | (448,629 | ) | (4,243,927 | ) | (787,423 | ) | (6,043,829 | ) | ||||||||
| Net increase (decrease) | 99,603 | 1,069,519 | (228,198 | ) | (2,243,007 | ) | ||||||||||
| Class Y | ||||||||||||||||
| Sold | 122,027 | 1,536,780 | 71,333 | 705,174 | ||||||||||||
| Reinvestment of dividends and distributions | 723 | 8,483 | 19,845 | 161,338 | ||||||||||||
| Redeemed | (35,382 | ) | (434,741 | ) | (2,206,106 | ) | (22,116,297 | ) | ||||||||
| Net increase (decrease) | 87,368 | 1,110,522 | (2,114,928 | ) | (21,249,785 | ) | ||||||||||
| Net increase (decrease) in share activity | (2,175,234 | ) | $ | (16,055,975 | ) | (4,471,979 | ) | $ | (42,583,198 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 74% 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. |
19 Invesco Special Value Fund
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 July 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Selected per share data: | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 10.10 | $ | 12.97 | $ | 18.62 | $ | 20.84 | $ | 22.28 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)(a) | (0.03 | ) | 0.05 | (0.03 | ) | (0.04 | ) | (0.04 | ) | |||||||||||
| Net realized and unrealized gain (loss) | 2.09 | (1.77 | ) | (1.56 | ) | 4.07 | 1.70 | |||||||||||||
| Total income (loss) from investment operations | 2.06 | (1.72 | ) | (1.59 | ) | 4.03 | 1.66 | |||||||||||||
| Less dividends and distributions from: | ||||||||||||||||||||
| Net investment income | (0.04 | ) | — | — | — | — | ||||||||||||||
| Net realized gain | — | (1.15 | ) | (4.06 | ) | (6.25 | ) | (3.10 | ) | |||||||||||
| Total dividends and distributions | (0.04 | ) | (1.15 | ) | (4.06 | ) | (6.25 | ) | (3.10 | ) | ||||||||||
| Net asset value, end of period | $ | 12.12 | $ | 10.10 | $ | 12.97 | $ | 18.62 | $ | 20.84 | ||||||||||
Total return(b) | 20.41 | % | (10.50 | )% | (9.32 | )% | 20.93 | % | 8.50 | % | ||||||||||
| Net assets, end of period, (000’s omitted) | $ | 270,338 | $ | 204,174 | $ | 244,668 | $ | 313,180 | $ | 283,281 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Total expenses | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.23 | %(c) | 1.34 | %(d) | 1.25 | %(d) | 1.21 | %(d) | 1.28 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 1.24 | %(c) | 1.34 | %(d) | 1.25 | %(d) | 1.21 | %(d) | 1.28 | % | ||||||||||
| Net investment loss | (0.25 | )%(c) | 0.57 | %(d) | (0.18 | )%(d) | (0.19 | )%(d) | (0.22 | )% | ||||||||||
| Rebate from affiliates | 0.01 | % | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | — | |||||||||||
| Supplemental data: | ||||||||||||||||||||
Portfolio turnover(f) | 29 | % | 54 | % | 47 | % | 44 | % | 28 | % | ||||||||||
| (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 based on average daily net assets (000’s omitted) of $249,770. | |
| (d) | 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”. | |
| (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. |
20 Invesco Special Value Fund
NOTE 11—Financial Highlights—(continued)
| Class B | ||||||||||||||||||||
| Year ended July 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Selected per share data: | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 8.27 | $ | 11.00 | $ | 16.55 | $ | 19.25 | $ | 20.95 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss(a) | (0.10 | ) | (0.01 | ) | (0.12 | ) | (0.17 | ) | (0.19 | ) | ||||||||||
| Net realized and unrealized gain (loss) | 1.71 | (1.57 | ) | (1.37 | ) | 3.72 | 1.59 | |||||||||||||
| Total income (loss) from investment operations | 1.61 | (1.58 | ) | (1.49 | ) | 3.55 | 1.40 | |||||||||||||
| Less distributions from net realized gain | — | (1.15 | ) | (4.06 | ) | (6.25 | ) | (3.10 | ) | |||||||||||
| Net asset value, end of period | $ | 9.88 | $ | 8.27 | $ | 11.00 | $ | 16.55 | $ | 19.25 | ||||||||||
Total return(b) | 19.47 | % | (11.17 | )% | (9.99 | )% | 20.00 | % | 7.68 | % | ||||||||||
| Net assets, end of period, (000’s omitted) | $ | 27,269 | $ | 59,761 | $ | 117,603 | $ | 209,575 | $ | 251,970 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Total expenses | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.98 | %(c) | 2.09 | %(d) | 2.00 | %(d) | 1.97 | %(d) | 2.03 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 1.99 | %(c) | 2.09 | %(d) | 2.00 | %(d) | 1.97 | %(d) | 2.03 | % | ||||||||||
| Net investment loss | (1.00 | )%(c) | (0.18 | )%(d) | (0.93 | )%(d) | (0.95 | )%(d) | (0.97 | )% | ||||||||||
| Rebate from affiliates | 0.01 | % | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | — | |||||||||||
| Supplemental data: | ||||||||||||||||||||
Portfolio turnover(f) | 29 | % | 54 | % | 47 | % | 44 | % | 28 | % | ||||||||||
| (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 based on average daily net assets (000’s omitted) of $44,516. | |
| (d) | 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”. | |
| (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. |
21 Invesco Special Value Fund
NOTE 11—Financial Highlights—(continued)
| Class C | ||||||||||||||||||||
| Year ended July 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Selected per share data: | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 8.29 | $ | 11.02 | $ | 16.57 | $ | 19.27 | $ | 20.97 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss(a) | (0.09 | ) | (0.01 | ) | (0.12 | ) | (0.17 | ) | (0.19 | ) | ||||||||||
| Net realized and unrealized gain (loss) | 1.70 | (1.57 | ) | (1.37 | ) | 3.72 | 1.59 | |||||||||||||
| Total income (loss) from investment operations | 1.61 | (1.58 | ) | (1.49 | ) | 3.55 | 1.40 | |||||||||||||
| Less distributions from net realized gain | — | (1.15 | ) | (4.06 | ) | (6.25 | ) | (3.10 | ) | |||||||||||
| Net asset value, end of period | $ | 9.90 | $ | 8.29 | $ | 11.02 | $ | 16.57 | $ | 19.27 | ||||||||||
Total return(b) | 19.42 | % | (11.14 | )% | (9.98 | )% | 19.97 | % | 7.72 | % | ||||||||||
| Net assets, end of period, (000’s omitted) | $ | 21,315 | $ | 17,022 | $ | 25,138 | $ | 36,613 | $ | 36,311 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Total expenses | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.98 | %(c) | 2.09 | %(d) | 2.00 | %(d) | 1.97 | %(d) | 2.02 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 1.99 | %(c) | 2.09 | %(d) | 2.00 | %(d) | 1.97 | %(d) | 2.02 | % | ||||||||||
| Net investment loss | (1.00 | )%(c) | (0.18 | )%(d) | (0.93 | )%(d) | (0.95 | )%(d) | (0.96 | )% | ||||||||||
| Rebate from affiliates | 0.01 | % | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | — | |||||||||||
| Supplemental data: | ||||||||||||||||||||
Portfolio turnover(f) | 29 | % | 54 | % | 47 | % | 44 | % | 28 | % | ||||||||||
| (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 based on average daily net assets (000’s omitted) of $19,756. | |
| (d) | 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”. | |
| (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. |
22 Invesco Special Value Fund
NOTE 11—Financial Highlights—(continued)
| Class Y | ||||||||||||||||||||
| Year ended July 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Selected per share data: | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 10.71 | $ | 13.60 | $ | 19.28 | $ | 21.34 | $ | 22.69 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income(a) | 0.00 | 0.23 | 0.01 | 0.01 | 0.00 | |||||||||||||||
| Net realized and unrealized gain (loss) | 2.20 | (1.97 | ) | (1.63 | ) | 4.18 | 1.75 | |||||||||||||
| Total income (loss) from investment operations | 2.20 | (1.74 | ) | (1.62 | ) | 4.19 | 1.75 | |||||||||||||
| Less dividends and distributions from: | ||||||||||||||||||||
| Net investment income | (0.06 | ) | — | — | — | — | ||||||||||||||
| Net realized gain | — | (1.15 | ) | (4.06 | ) | (6.25 | ) | (3.10 | ) | |||||||||||
| Total dividends and distributions | (0.06 | ) | (1.15 | ) | (4.06 | ) | (6.25 | ) | (3.10 | ) | ||||||||||
| Net asset value, end of period | $ | 12.85 | $ | 10.71 | $ | 13.60 | $ | 19.28 | $ | 21.34 | ||||||||||
Total return(b) | 20.58 | % | (10.14 | )% | (9.13 | )% | 21.23 | % | 8.76 | % | ||||||||||
| Net assets, end of period, (000’s omitted) | $ | 2,861 | $ | 1,449 | $ | 30,609 | $ | 52,070 | $ | 54,930 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Total expenses | ||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.98 | %(c) | 1.09 | %(d) | 1.00 | %(d) | 0.97 | %(d) | 1.03 | % | ||||||||||
Without fee waivers and/or expense reimbursements | 0.99 | %(c) | 1.09 | %(d) | 1.00 | %(d) | 0.97 | %(d) | 1.03 | % | ||||||||||
| Net investment income | 0.00 | %(c) | 0.82 | %(d) | 0.07 | %(d) | 0.05 | %(d) | 0.03 | % | ||||||||||
| Rebate from affiliates | 0.01 | % | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | — | |||||||||||
| Supplemental data: | ||||||||||||||||||||
Portfolio turnover(f) | 29 | % | 54 | % | 47 | % | 44 | % | 28 | % | ||||||||||
| (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 based on average daily net assets (000’s omitted) of $1,924. | |
| (d) | 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”. | |
| (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. |
NOTE 12—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.
23 Invesco Special Value Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Sector Funds (Invesco Sector Funds)
and Shareholders of Invesco Special 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 Special Value Fund (formerly known as Morgan Stanley Special Value Fund; one of the funds constituting AIM Sector Funds (Invesco Sector Funds), hereafter referred to as the “Fund”) at July 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 July 31, 2010 by correspondence with the custodian, provides a reasonable basis for our opinion. The statement of changes in net assets for the year ended July 31, 2009 and the financial highlights of the Fund for the periods ended July 31, 2009 and prior were audited by other independent auditors whose report dated September 25, 2009 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
September 17, 2010
Houston, Texas
24 Invesco Special Value Fund
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 February 1, 2010 through July 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 | (01/01/10) | (07/31/10)1 | Period2 | (07/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
| A | $ | 1,000.00 | $ | 1,086.00 | $ | 6.26 | $ | 1,018.79 | $ | 6.06 | 1.21 | % | ||||||||||||||||||
| B | 1,000.00 | 1,082.10 | 10.12 | 1,015.08 | 9.79 | 1.96 | ||||||||||||||||||||||||
| C | 1,000.00 | 1,082.00 | 10.12 | 1,015.08 | 9.79 | 1.96 | ||||||||||||||||||||||||
| Y | 1,000.00 | 1,087.10 | 4.97 | 1,020.03 | 4.81 | 0.96 | ||||||||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period February 1, 2010 through July 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 181/365 to reflect the most recent fiscal half year. |
25 Invesco Special Value Fund
| Approval of Investment Advisory and Sub-Advisory Agreements |
The Board of Trustees (the Board) of AIM Sector Funds (Invesco Sector Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Special 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. 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
26 Invesco Special Value Fund
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.
27 Invesco Special Value Fund
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 July 31, 2010:
Federal and State Income Tax | ||||
| Qualified Dividend Income* | 0% | |||
| Corporate Dividends Received Deduction* | 0% | |||
| U.S. Treasury Obligations* | 0% | |||
| * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
28 Invesco Special Value Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Special 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 | 14,315,455 | 633,114 | 905,023 | 0 | |||||||||||||
29 Invesco Special Value Fund
Trustees and Officers
The address of each trustee and officer is AIM Sector Funds (Invesco Sector Funds) (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 | 2001 | 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
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 | 2003 | 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 | 1987 | 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 | 2001 | 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 | 2001 | 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 | 2001 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 214 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
| Prema Mathai-Davis — 1950 Trustee | 2001 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 214 | None | ||||||||||
| Lewis F. Pennock — 1942 Trustee | 2001 | Partner, law firm of Pennock & Cooper | 214 | None | ||||||||||
| Larry Soll — 1942 Trustee | 2003 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 214 | None | ||||||||||
T-2
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 | ||||||||||
| Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, The Invesco Funds; and Trustee, 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; and Director and Chairman, Van Kampen Advisors Inc. Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. and Invesco Advisers, Inc.; Senior Vice President, Invesco Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Director and Vice President, IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | N/A | ||||||||||
T-3
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 | ||||||||||||||
| Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | 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) | N/A | N/A | ||||||||||
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. | ||||||||||||||
| Karen Dunn Kelley — 1960 Vice President | 2004 | 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 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103 | Counsel to the Independent Trustees Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 | Transfer Agent Invesco Investment Services, Inc. P.O. Box 4739 Houston, TX 77210-4739 | Custodian State Street Bank and Trust Company 225 Franklin Boston, MA 02110-2801 |
T-4
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| - | environmentally friendly. Go green by reducing the number of trees used to produce paper. | |
| - | economical. Help reduce your fund’s printing and delivery expenses and put more capital back in your fund’s returns. |
| - | efficient. Stop waiting for regular mail. Your documents will be sent via email as soon as they’re available. | |
| - | easy. Download, save and print files using your home computer with a few clicks of your mouse. |
This service is provided by Invesco Investment Services, Inc.
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 811-03826 and 002-85905.
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.
If used after October 20, 2010, this report must be accompanied by a Quarterly Performance Review for the most recent quarter-end.
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-SPVAL-AR-1 | Invesco Distributors, Inc. |
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 Principal Accountant 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 to Non-Audit | ||||||||
| Fees Billed for | Services Provided for | |||||||
| Services Rendered to | fiscal year end 7/31/2010 | |||||||
| the Registrant for | Pursuant to Waiver of | |||||||
| fiscal year end | Pre-Approval | |||||||
| 7/31/2010 | Requirement(1) | |||||||
| Audit Fees | $ | 28,200 | N/A | |||||
| Audit-Related Fees | $ | 0 | 0 | % | ||||
Tax Fees(2) | $ | 6,300 | 0 | % | ||||
| All Other Fees | $ | 0 | 0 | % | ||||
| Total Fees | $ | 34,500 | 0 | % | ||||
PWC billed the Registrant aggregate non-audit fees of $6,300 for the fiscal year ended July 31, 2010.
| (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) | Tax fees for the fiscal year end July 31, 2010 includes fees billed for reviewing tax returns. |
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-Audit Services | ||||||||
| Rendered to Invesco | ||||||||
| and Invesco | Percentage of Fees Billed | |||||||
| Affiliates for fiscal | Applicable to Non-Audit | |||||||
| year end 7/31/2010 | Services Provided for | |||||||
| That Were Required | fiscal year end 7/31/2010 | |||||||
| to be Pre-Approved | Pursuant to Waiver of | |||||||
| by the Registrant’s | Pre-Approval | |||||||
| Audit Committee | Requirement(1) | |||||||
| Audit-Related Fees | $ | 0 | 0 | % | ||||
| Tax Fees | $ | 0 | 0 | % | ||||
| All Other Fees | $ | 0 | 0 | % | ||||
Total Fees(2) | $ | 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 July 31, 2010. | |
| 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. |
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
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.
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.
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 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, 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. |
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 Sector Funds (Invesco Sector Funds)
| By: | /s/ Philip A. Taylor | |||
| Philip A. Taylor | ||||
| Principal Executive Officer | ||||
Date: October 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: October 8, 2010
| By: | /s/ Sheri Morris | |||
| Sheri Morris | ||||
| Principal Financial Officer | ||||
Date: October 8, 2010
TABLE OF CONTENTS
| Item 1. Reports to Stockholders. | ||||||||
| EXHIBIT INDEX | ||||||||
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. |