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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)*
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: 12/31
Date of reporting period: 12/31/10
| * | Funds included are: Invesco U.S. Small/Mid Cap Value Fund, Invesco Van Kampen Comstock Fund and Invesco Van Kampen Enterprise Fund. |
Item 1. Reports to Stockholders.
 |
| Annual Report to Shareholders | December 31, 2010 |
Invesco U.S. Small/Mid Cap Value Fund
| 2 | Letters to Shareholders | |
| 4 | Performance Summary | |
| 4 | Management Discussion | |
| 6 | Long-Term Fund Performance | |
| 8 | Supplemental Information | |
| 9 | Schedule of Investments | |
| 11 | Financial Statements | |
| 13 | Notes to Financial Statements | |
| 19 | Financial Highlights | |
| 20 | Auditor’s Report | |
| 21 | Fund Expenses | |
| 22 | Tax Information | |
| T-1 | Trustees and Officers | |
Letters to Shareholders
Philip Taylor
Dear Shareholders:
Enclosed is important information about your Fund and its performance.
I’ve always believed that companies have an obligation to communicate regularly with their clients, and I believe that obligation is especially critical in the investment industry.
Our website — invesco.com/us — offers timely market updates and commentary from many of our portfolio managers and other investment professionals, as well as quarterly messages from me. At invesco.com/us, you also can obtain information about your account at any hour of the day or night. I invite you to visit and explore the tools and information we offer.
Invesco’s commitment to investment excellence
Invesco’s acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, broadened our range of investment products available to you. As a strong organization with a single focus — investment management — Invesco today offers investment capabilities and products to meet the needs of virtually any investor. In addition to traditional mutual funds, we manage a broad range of other solutions, including single-country, regional and global investments spanning major equity, fixed income and alternative asset classes.
Investment excellence is our goal across our product line. Let me explain what that means. All of our funds are managed by specialized teams of investment professionals. Each team has a discrete investment perspective and philosophy, and all follow disciplined, repeatable processes governed by strong risk oversight. Our investment-centric culture provides an environment that seeks to reduce distractions, allowing our fund managers to concentrate on what they do best — manage your money.
The importance of a broad product line and investment management expertise is obvious given the markets we’ve experienced over the last two to three years. We’ve seen that investment strategies can outperform or underperform their benchmark indexes for a variety of reasons, including where we are in the market cycle, and whether prevailing economic conditions are favorable or unfavorable for that strategy. That’s why no investment strategy can guarantee top-tier performance at all times. What investors can expect, and what Invesco offers, are funds that are managed according to their stated investment objectives and strategies, with robust risk oversight using consistent, repeatable investment processes that don’t change as short-term external conditions change — investments managed for the long term. This disciplined approach can’t guarantee a profit; no investment can do that, since all involve some measure of risk. But it can ensure that your money is managed the way we said it would be.
This adherence to stated investment objectives and strategies allows your financial adviser to build a diversified portfolio that meets your individual risk tolerance and financial goals. It also means that when your goals change, your financial adviser will be able to find an appropriate investment option to meet your needs.
Invesco’s commitment to you
Invesco’s commitment to you remains stronger than ever. It’s one of the reasons we’ve grown to become one of the world’s largest asset managers.
If you have questions about your account, please contact one of our client service representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, I invite you to email me directly at phil@invesco.com.
I want to thank you for placing your trust in us. All of us at Invesco look forward to serving your investment management needs for many years to come. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco Ltd.
Senior Managing Director, Invesco Ltd.
| 2 | Invesco U.S. Small/Mid Cap Value Fund |
Bruce Crockett
Dear Fellow Shareholders:
With 2010 behind us, now is a good time to review our portfolios and ensure that we are adhering to a long-term, diversified investment strategy, which I’ve mentioned in previous letters. The year was notable for a number of reasons, but I’m sure most of us are grateful for a return to more stable markets and growing signs that the worst of the economic crisis is behind us.
Your Board continued to oversee the Invesco Funds with a strong sense of responsibility for your savings and a deep appreciation for your continued trust. As always, we worked throughout 2010 to manage costs and ensure Invesco continued to place investor interests first.
I’m pleased to report that the latest report from Morningstar affirmed the work we’ve done and included a number of positive comments regarding your Board’s oversight of the Invesco Funds. As background, Morningstar is a leading independent provider of investment research in North America, Europe, Australia and Asia. Morningstar stated, “A fund board’s duty is to represent the interests of fund shareholders, ensuring that the funds that it oversees charge reasonable fees and are run by capable advisers with a sound investment process.”
Morningstar maintained your Fund Board’s “A” grade for Board Quality, praising the Board for taking “meaningful steps in recent years to act in fund shareholders’ interests.”1 These steps included becoming much more proactive and vocal in overseeing how Invesco votes the funds’ shareholders’ proxies and requiring each fund trustee to invest more than one year’s board compensation in Invesco funds, further aligning our interests with those of our shareholders. Morningstar also cited the work I’ve done to make myself more available to fund shareholders via email.
I am also pleased that Morningstar recognized the effort and the Fund Board’s efforts over the past several years to work together with management at Invesco to enhance performance and sharpen the focus on investors.
Let me close by wishing you a happy and prosperous new year. As always, you’re welcome to contact me at bruce@brucecrockett.com with any questions or concerns you have. We look forward to representing you and serving you in the new year.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
| 1 | Among the criteria Morningstar considers when evaluating a fund board are the degree to which the board is independent of the fund company; board members’ financial interests are aligned with those of fund shareholders; the board acts in fund shareholders’ interests; and the board works constructively with company management and investment personnel. Morningstar first awarded an “A” rating to the Invesco Funds board on September 13, 2007; that rating has been maintained in subsequent reports, the most recent of which was released December 17, 2010. Ratings are subject to change, usually every 12 to 24 months. Morningstar ratings range from “A” to “F.” |
| 3 | Invesco U.S. Small/Mid Cap 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 U.S. Small/Mid Cap Value Fund was reorganized into Invesco U.S. Small/Mid Cap 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 12 months ended December 31, 2010, the Fund’s Class A shares, at net asset value, performed essentially in line with the Russell 2500 Value Index and outperformed the Lipper Mid-Cap Value Funds Index.
The Fund’s performance benefited the most from holdings in the industrials and consumer discretionary sectors. Alternatively, select holdings in the health care and financials sectors were the largest detractors from performance during the year.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/09 to 12/31/10, 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 | 24.52 | % | ||
| Class B Shares | 23.74 | |||
| Class C Shares | 23.62 | |||
| Class Y Shares | 24.81 | |||
Russell 2500 Value Index▼ (Broad Market/Style-Specific Index) | 24.82 | |||
Lipper Mid-Cap Value Funds Index▼ (Peer Group Index) | 21.64 | |||
| ▼ | Lipper Inc. |
How we invest
As noted above, the Fund’s management team changed during the reporting period. 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 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.
Portfolio Composition
By sector
| Information Technology | 21.6 | % | ||
| Industrials | 20.8 | |||
| Consumer Discretionary | 16.5 | |||
| Financials | 13.9 | |||
| Health Care | 8.8 | |||
| Utilities | 5.6 | |||
| Energy | 4.4 | |||
| Materials | 2.2 | |||
| Telecommunication Services | 1.7 | |||
| Consumer Staples | 0.8 | |||
Money Market Funds Plus Other Assets | ||||
Less Liabilities | 3.7 | |||
| Total Net Assets | $15.1 million | |||
| Total Number of Holdings* | 53 | |||
The Fund’s philosophy is based on key elements that we believe have extensive empirical evidence:
| n | Most companies’ 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. |
Top 10 Equity Holdings*
| 1. | Jabil Circuit, Inc. | 3.5 | % | |||||
| 2. | WABCO Holdings Inc. | 3.2 | ||||||
| 3. | Interpublic Group of Cos., Inc. (The) | 3.0 | ||||||
| 4. | AAR Corp. | 2.9 | ||||||
| 5. | CNO Financial Group, Inc. | 2.8 | ||||||
| 6. | Harman International Industries, Inc. | 2.8 | ||||||
| 7. | Alliance Data Systems Corp. | 2.7 | ||||||
| 8. | Belden Inc. | 2.7 | ||||||
| 9. | AerCap Holdings N.V. | 2.6 | ||||||
| 10. | Terex Corp. | 2.6 | ||||||
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.
| n | Long-term investment results are a function of the level and growth of business value in the portfolio. |
We sell stocks for three primary reasons:
| n | A more attractive investment opportunity presents itself. | |
| n | A stock is trading significantly above our estimate of intrinsic value. | |
| n | 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 from the stock market and peers and have little information value since we simply don’t own the same stocks.
Market conditions and your Fund
Equity markets were choppy during the fiscal year as investors weighed the competing issues of solid corporate profits and soft macroeconomic data. Corporate earnings were largely positive but were often overshadowed by concerns about high unemployment, weak consumer spending, soft housing data and the possibility of additional U.S. Federal Reserve accommodation. After rising through April, major equity indexes sold off precipitously in May as the sovereign debt crisis unfolded in the eurozone while U.S. economic indicators remained weak, prompting fears of a “double-dip” recession. Uncertainty created by the debt crisis — combined with subdued employment, consumer spending and housing data — added to concerns that the recovery was slowing. Just as abruptly, however, the markets reversed course starting in September and rallied through the end of the year on modestly better economic news.
All sectors within the Fund and its broad market/style-specific benchmark also posted positive performance for the reporting period.
In this environment, the Fund performed essentially in line with its broad market/style-specific index. Fund
| 4 | Invesco U.S. Small/Mid Cap Value Fund |
holdings in the industrials and consumer discretionary sectors performed particularly well. Specifically, our investments in WABCO Holdings and Interpublic Group posted strong double-digit gains and were the top two contributors to Fund results for the year. WABCO Holdings is a leading supplier of safety and control systems for commercial vehicles. The company experienced stronger-than-expected sales growth in 2010 and increased demand from customers in Europe and China in the fourth quarter. Interpublic Group is one of the world’s largest advertising and marketing services companies. The company benefited from a rebound in advertising spending in the U.S. during 2010.
Select holdings in the energy sector also were among the top contributors to Fund performance.
Alternatively, health care company Pharmerica was the single-largest detractor from performance. Pharmerica is a pharmaceutical services company serving patients and residents in hospitals and long-term care facilities. We sold our position in this company toward the end of the reporting period. Financial company Wilmington Trust also was a large detractor from performance. We sold our position in this company in early November after the company reported losses that were much worse than expected and after management announced that it would be selling the bank to M&T Bank (not a Fund holding).
Select holdings in the information technology sector also were among the largest detractors from performance during the year. Finally, the Fund’s small cash position detracted from relative performance in a rising stock market environment.
We completed the transition of the portfolio in September, which resulted in turnover of approximately one third of the Fund’s holdings. Notable changes were an increase in the Fund’s exposure to the consumer discretionary sector and a decrease in exposure to the materials sector. We also sold several investments toward the end of the year and purchased some new companies that we believe offered better valuation opportunities.
Equity markets experienced a strong recovery during the period covered by this report. As always, we would like to caution investors against making investment decisions based on short-term performance. We recommend that you consult a financial adviser to discuss your individual financial program.
We intend to work hard to protect and grow the Fund’s overall intrinsic value. Thank you for your investment in Invesco U.S. Small/Mid Cap Value Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
R. Canon Coleman II
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco U.S. Small/Mid Cap 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.
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco U.S. Small/Mid Cap 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 U.S. Small/Mid Cap 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.
Portfolio manager, is manager of Invesco U.S. Small/Mid Cap 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 U.S. Small/Mid Cap 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.
Chartered Financial Analyst, portfolio manager, is manager of Invesco U.S. Small/Mid Cap 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 U.S. Small/Mid Cap Value Fund |
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Classes since Inception
Fund data from 9/27/07, index data from 9/30/07
Fund data from 9/27/07, index data from 9/30/07
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the
peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
| 6 | Invesco U.S. Small/Mid Cap Value Fund |
Average Annual Total Returns
As of 12/31/10, including maximum applicable sales charges
| Class A Shares | ||||||||
| Inception (9/27/07) | -2.58 | % | ||||||
| 1 Year | 17.72 | |||||||
| Class B Shares | ||||||||
| Inception | -2.51 | % | ||||||
| 1 Year | 18.74 | |||||||
| Class C Shares | ||||||||
| Inception | -1.61 | % | ||||||
| 1 Year | 22.62 | |||||||
| Class Y Shares | ||||||||
| Inception (9/27/07) | -0.63 | % | ||||||
| 1 Year | 24.81 | |||||||
Effective June 1, 2010, Class I and Class P shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Class Y and Class A shares, respectively, of Invesco U.S. Small/Mid Cap Value Fund. Returns shown above for Class Y and Class A shares are blended returns of the predecessor fund and Invesco U.S. Small/Mid Cap Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
Class B and Class C shares incepted on June 1, 2010. Class B and Class C shares performance shown prior to the inception date is that of the predecessor fund’s Class P shares and includes the 12b-1 fees applicable to Class P shares. Class B and Class C shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class P shares was September 27, 2007.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.52%, 2.27%, 2.27% and 1.27%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.78%, 2.53%, 2.53% and 1.53%, 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.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
| 1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
| 7 | Invesco U.S. Small/Mid Cap Value Fund |
Invesco U.S. Small/Mid Cap Value Fund’s investment objective is to seek long-term capital appreciation.
| n | Unless otherwise stated, information presented in this report is as of December 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 | Class B or Class B5 shares may not be purchased or acquired by exchange from share classes other than Class B or Class B5 shares. Please see the prospectus for more information. | |
| n | Class Y shares are available to only certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
| n | In general, prices of equity securities are more volatile than those of fixed income securities. Prices of equity securities will rise and fall in response to events that affect entire financial markets or industries and to events that affect particular issuers. Investing in convertible securities may subject the portfolio to the risks associated with both fixed income securities and common stocks. | |
| n | Investments in small- and mid-size companies may involve greater risk than investments in larger, more established companies. Small-to-mid capitalization value-oriented equity securities may underperform relative to the overall market. The securities issued by small and mid-size companies may be less liquid and their prices subject to more abrupt or erratic price movements. | |
| 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 | Real estate investment trusts (REITs) pool investors’ funds for investments primarily in real estate properties or real estate-related loans. The performance of any Fund REIT holdings |
| ultimately depends on the types of real property in which the REITs invest and how well the property is managed. A general downturn in real estate values also can hurt REIT performance. | ||
| n | Investing in foreign securities entails the risk that news and events unique to a county or region will affect those markets and their issuers. The value of the Fund’s shares may vary widely in response to political and economic factors affecting companies in foreign countries. In addition, the Fund’s investments in foreign countries may be denominated in foreign currencies. As a result, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Fund’s investments. The Adviser may invest in certain instruments, such as derivatives, and may use certain techniques such as hedging, to manage these risks. |
About indexes used in this report
| n | The Russell 2500™ Value Index measures the performance of those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2500 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |
| n | The Lipper Mid-Cap Value Funds Index is an unmanaged index considered representative of mid-cap value funds tracked by Lipper. | |
| n | The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). | |
| 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 | MSMMX | |
| Class B Shares | MSMGX | |
| Class C Shares | MSMQX | |
| Class Y Shares | MSMDX |
| 8 | Invesco U.S. Small/Mid Cap Value Fund |
Schedule of Investments(a)
December 31, 2010
| Shares | Value | |||||||
| Common Stocks & Other Equity Interests–96.30% | ||||||||
| Advertising–3.00% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 42,600 | $ | 452,412 | |||||
| Aerospace & Defense–5.50% | ||||||||
AAR Corp.(b) | 15,700 | 431,279 | ||||||
AerCap Holdings N.V. (Netherlands)(b) | 28,143 | 397,379 | ||||||
| 828,658 | ||||||||
| Apparel Retail–2.07% | ||||||||
| Abercrombie & Fitch Co.–Class A | 5,400 | 311,202 | ||||||
| Asset Management & Custody Banks–2.93% | ||||||||
| Federated Investors, Inc.–Class B | 8,400 | 219,828 | ||||||
| Janus Capital Group Inc. | 17,100 | 221,787 | ||||||
| 441,615 | ||||||||
| Construction & Engineering–2.36% | ||||||||
Shaw Group Inc. (The)(b) | 10,400 | 355,992 | ||||||
| Construction Materials–0.24% | ||||||||
| Eagle Materials Inc. | 1,300 | 36,725 | ||||||
| Construction, Farm Machinery & Heavy Trucks–5.77% | ||||||||
Terex Corp.(b) | 12,700 | 394,208 | ||||||
WABCO Holdings Inc.(b) | 7,800 | 475,254 | ||||||
| 869,462 | ||||||||
| Consumer Electronics–2.77% | ||||||||
Harman International Industries, Inc.(b) | 9,000 | 416,700 | ||||||
| Data Processing & Outsourced Services–5.88% | ||||||||
Alliance Data Systems Corp.(b) | 5,700 | 404,871 | ||||||
| Broadridge Financial Solutions Inc. | 8,600 | 188,598 | ||||||
| Computer Sciences Corp. | 5,900 | 292,640 | ||||||
| 886,109 | ||||||||
| Electric Utilities–1.55% | ||||||||
| NV Energy, Inc. | 16,600 | 233,230 | ||||||
| Electrical Components & Equipment–2.66% | ||||||||
| Belden Inc. | 10,900 | 401,338 | ||||||
| Electronic Manufacturing Services–4.47% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 19,300 | 151,505 | ||||||
| Jabil Circuit, Inc. | 26,000 | 522,340 | ||||||
| 673,845 | ||||||||
| Gas Utilities–1.91% | ||||||||
| UGI Corp. | 9,100 | 287,378 | ||||||
| Health Care Equipment–2.29% | ||||||||
| Beckman Coulter, Inc. | 4,100 | 308,443 | ||||||
CONMED Corp.(b) | 1,365 | 36,077 | ||||||
| 344,520 | ||||||||
| Health Care Facilities–1.32% | ||||||||
Select Medical Holdings Corp.(b) | 27,129 | 198,313 | ||||||
| Health Care Supplies–1.18% | ||||||||
| Cooper Cos., Inc. | 3,165 | 178,316 | ||||||
| Human Resource & Employment Services–2.01% | ||||||||
| Robert Half International, Inc. | 9,900 | 302,940 | ||||||
| Industrial Machinery–2.48% | ||||||||
| Snap-on, Inc. | 6,600 | 373,428 | ||||||
| IT Consulting & Other Services–5.65% | ||||||||
Acxiom Corp.(b) | 8,100 | 138,915 | ||||||
Amdocs Ltd.(b) | 11,000 | 302,170 | ||||||
| MAXIMUS, Inc. | 3,112 | 204,085 | ||||||
Teradata Corp.(b) | 5,000 | 205,800 | ||||||
| 850,970 | ||||||||
| Life & Health Insurance–2.79% | ||||||||
CNO Financial Group, Inc.(b) | 61,956 | 420,061 | ||||||
| Life Sciences Tools & Services–4.00% | ||||||||
| PerkinElmer, Inc. | 12,000 | 309,840 | ||||||
| Pharmaceutical Product Development, Inc. | 10,800 | 293,112 | ||||||
| 602,952 | ||||||||
| Multi-Utilities–2.10% | ||||||||
| CMS Energy Corp. | 17,000 | 316,200 | ||||||
| Office Electronics–1.21% | ||||||||
Zebra Technologies Corp., Class A(b) | 4,800 | 182,352 | ||||||
| Office Services & Supplies–3.20% | ||||||||
| Avery Dennison Corp. | 6,600 | 279,444 | ||||||
| Interface, Inc.–Class A | 12,915 | 202,120 | ||||||
| 481,564 | ||||||||
| Oil & Gas Equipment & Services–2.35% | ||||||||
Exterran Holdings Inc.(b) | 3,100 | 74,245 | ||||||
Superior Energy Services, Inc.(b) | 8,000 | 279,920 | ||||||
| 354,165 | ||||||||
| Oil & Gas Exploration & Production–2.08% | ||||||||
| Pioneer Natural Resources Co. | 3,600 | 312,552 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco U.S. Small/Mid Cap Value Fund
| Shares | Value | |||||||
| Packaged Foods & Meats–0.81% | ||||||||
| ConAgra Foods, Inc. | 5,400 | $ | 121,932 | |||||
| Paper Packaging–1.98% | ||||||||
| Sealed Air Corp. | 11,700 | 297,765 | ||||||
| Property & Casualty Insurance–1.38% | ||||||||
| Axis Capital Holdings Ltd. | 5,800 | 208,104 | ||||||
| Regional Banks–2.32% | ||||||||
| Zions Bancorp. | 14,400 | 348,912 | ||||||
| Reinsurance–3.37% | ||||||||
| Reinsurance Group of America, Inc. | 5,800 | 311,518 | ||||||
| Transatlantic Holdings, Inc. | 3,800 | 196,156 | ||||||
| 507,674 | ||||||||
| Restaurants–2.59% | ||||||||
AFC Enterprises, Inc.(b) | 6,533 | 90,809 | ||||||
| Wendy’s/Arby’s Group, Inc. Class A | 64,900 | 299,838 | ||||||
| 390,647 | ||||||||
| Semiconductor Equipment–1.87% | ||||||||
Novellus Systems, Inc.(b) | 8,700 | 281,184 | ||||||
| Specialized Consumer Services–1.15% | ||||||||
| Weight Watchers International, Inc. | 4,600 | 172,454 | ||||||
| Systems Software–2.49% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 8,100 | 374,706 | ||||||
| Thrifts & Mortgage Finance–1.16% | ||||||||
| TFS Financial Corp. | 19,400 | 174,988 | ||||||
| Tires & Rubber–1.72% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 21,900 | 259,515 | ||||||
| Wireless Telecommunication Services–1.69% | ||||||||
MetroPCS Communications, Inc.(b) | 20,100 | 253,863 | ||||||
| Total Common Stocks & Other Equity Interests (Cost $10,751,390) | 14,504,743 | |||||||
| Money Market Funds–3.54% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 266,424 | 266,424 | ||||||
Premier Portfolio–Institutional Class(c) | 266,424 | 266,424 | ||||||
| Total Money Market Funds (Cost $532,848) | 532,848 | |||||||
| TOTAL INVESTMENTS–99.84% (Cost $11,284,238) | 15,037,591 | |||||||
| OTHER ASSETS LESS LIABILITIES–0.16% | 23,626 | |||||||
| NET ASSETS–100.00% | $ | 15,061,217 | ||||||
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.
10 Invesco U.S. Small/Mid Cap Value Fund
Statement of Assets and Liabilities
December 31, 2010
| Assets: | ||||
| Investments, at value (Cost $10,751,390) | $ | 14,504,743 | ||
| Investments in affiliated money market funds, at value and cost | 532,848 | |||
| Total investments, at value (Cost $11,284,238) | 15,037,591 | |||
| Receivable for: | ||||
| Investments sold | 38,622 | |||
| Fund shares sold | 3,886 | |||
| Dividends | 7,490 | |||
| Fund expenses absorbed | 6,187 | |||
| Investment for trustee deferred compensation and retirement plans | 1,060 | |||
| Other assets | 29,381 | |||
| Total assets | 15,124,217 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Investments purchased | 14,063 | |||
| Fund shares reacquired | 2,091 | |||
| Accrued fees to affiliates | 1,318 | |||
| Accrued other operating expenses | 44,468 | |||
| Trustee deferred compensation and retirement plans | 1,060 | |||
| Total liabilities | 63,000 | |||
| Net assets applicable to shares outstanding | $ | 15,061,217 | ||
| Net assets consist of: | ||||
| Shares of beneficial interest | $ | 14,539,888 | ||
| Undistributed net investment income (loss) | (964 | ) | ||
| Undistributed net realized gain (loss) | (3,231,060 | ) | ||
| Unrealized appreciation | 3,753,353 | |||
| $ | 15,061,217 | |||
| Net Assets: | ||||
| Class A | $ | 360,598 | ||
| Class B | $ | 25,119 | ||
| Class C | $ | 21,142 | ||
| Class Y | $ | 14,654,358 | ||
| Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
| Class A | 37,160 | |||
| Class B | 2,598 | |||
| Class C | 2,189 | |||
| Class Y | 1,501,198 | |||
| Class A: | ||||
| Net asset value per share | $ | 9.70 | ||
| Class B: | ||||
| Net asset value and offering price per share | $ | 9.67 | ||
| Class C: | ||||
| Net asset value and offering price per share | $ | 9.66 | ||
| Class Y: | ||||
| Net asset value and offering price per share | $ | 9.76 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco U.S. Small/Mid Cap Value Fund
Statement of Operations
For the year ended December 31, 2010
| Investment income: | ||||
| Dividends | $ | 183,664 | ||
| Dividends from affiliated money market funds | 571 | |||
| Total investment income | 184,235 | |||
| Expenses: | ||||
| Advisory fees | 116,020 | |||
| Administrative services fees | 36,945 | |||
| Custodian fees | 8,438 | |||
| Distribution fees: | ||||
| Class A | 307 | |||
| Class B | 86 | |||
| Class C | 79 | |||
| Transfer Agent Fees — A, B, C and Y | 6,755 | |||
| Trustees’ and officers’ fees and benefits | 8,097 | |||
| Registration and filing fees | 26,460 | |||
| Professional services fees | 37,527 | |||
| Other | 17,816 | |||
| Total expenses | 258,530 | |||
| Less: Fees waived | (57,877 | ) | ||
| Net expenses | 200,653 | |||
| Net investment income (loss) | (16,418 | ) | ||
| Net realized gain from investment securities | 3,379,583 | |||
| Change in net unrealized appreciation (depreciation) of investment securities | (231,170 | ) | ||
| Net realized and unrealized gain | 3,148,413 | |||
| Net increase in net assets resulting from operations | $ | 3,131,995 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco U.S. Small/Mid Cap Value Fund
Statement of Changes in Net Assets
For the years ended December 31, 2010 and 2009
| 2010 | 2009 | |||||||
| Operations: | ||||||||
| Net investment income (loss) | $ | (16,418 | ) | $ | 31,978 | |||
| Net realized gain (loss) | 3,379,583 | (4,239,134 | ) | |||||
| Change in net unrealized appreciation (depreciation) | (231,170 | ) | 9,794,594 | |||||
| Net increase in net assets resulting from operations | 3,131,995 | 5,587,438 | ||||||
| Distributions to shareholders from net investment income — Class Y | — | (26,705 | ) | |||||
| Share transactions–net: | ||||||||
| Class A | 257,773 | — | ||||||
| Class B | 21,241 | — | ||||||
| Class C | 17,771 | — | ||||||
| Class Y | (10,355,394 | ) | (122,142 | ) | ||||
| Net increase (decrease) in net assets resulting from share transactions | (10,058,609 | ) | (122,142 | ) | ||||
| Net increase (decrease) in net assets | (6,926,614 | ) | 5,438,591 | |||||
| Net assets: | ||||||||
| Beginning of year | 21,987,831 | 16,549,240 | ||||||
| End of year (includes undistributed net investment income (loss) of $(964) and $(73), respectively) | $ | 15,061,217 | $ | 21,987,831 | ||||
Notes to Financial Statements
December 31, 2010
NOTE 1—Significant Accounting Policies
Invesco U.S. Small/Mid Cap Value Fund, (the “Fund”) is a series portfolio of AIM Sector Funds (Invesco 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 U.S. Small/Mid Cap Value Portfolio (the “Acquired Fund”), an investment portfolio of Morgan Stanley Institutional Fund, Inc. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”). Upon closing of the Reorganization, holders of the Acquired Fund’s Class P and I shares received Class A and Class Y shares, respectively, of the Fund. Information for the Acquired Fund’s — Class P and I shares prior to the Reorganization is included with Class A and Y shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to seek long-term capital appreciation.
The Fund currently consists of four different classes of shares: Class A, Class B, Class C and Class Y. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class C shares are sold with a CDSC. Class Y shares are sold at net asset value. Effective November 30, 2010, new or additional investments in Class B shares are no longer permitted. Existing shareholders of Class B shares may continue to reinvest dividends and capital gains distributions in Class B shares until they convert. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert. 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. Redemption of Class B shares prior to conversion date will be subject to a CDSC.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
| A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an |
13 Invesco U.S. Small/Mid Cap Value Fund
| independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
| Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
| Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
| Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
| Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
| Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
| Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
| The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
| Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
| The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
| D. | Distributions — Distributions from income are declared and paid annually and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
14 Invesco U.S. Small/Mid Cap Value Fund
| federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
| The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of 0.67% of the Fund’s average daily net assets. Prior to the Reorganization, the Acquired Fund paid an advisory fee of $63,877 to Morgan Stanley Investment Management Inc. (“MS Investment Management”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Class A, Class B, Class C, and Class Y shares to 1.51%, 2.26%, 2.26%, and 1.26%, 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 and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the year ended December 31, 2010, the Adviser and MSIM waived advisory fees of $57,681 and $196, respectively.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. These expenses along with the related expense reimbursement are included in the Statement of Operations. For the year ended December 31, 2010, Invesco Ltd. did not reimburse expenses of the Fund under this agreement.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. For the year ended December 31, 2010, expenses incurred under the agreement are shown on the Statement of Operations as administrative services fees. Prior to the Reorganization, the Acquired Fund paid an administration fee of $7,630 to MS Investment Management.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trist’s Board of Trustees. Prior to the Reorganization, the Acquired Fund paid $4,024 to Morgan Stanley Services Company Inc., which served as the Acquired Fund’s transfer agent. For the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (IDI) to serve as the distributor for Class A, Class B, Class C and Class Y shares of the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Class A, Class B and Class C shares (collectively the “Plans”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of
15 Invesco U.S. Small/Mid Cap Value Fund
Class A, Class B and Class C shares. Of the Plan payments, up to 0.25% of the average daily net assets of each class of shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. Rules of the Financial Industry Regulatory Authority (“FINRA”) impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Prior to the Reorganization, the Acquired Fund paid distribution fees of $84 to Morgan Stanley Distributors Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class P shares. For the year ended December 31, 2010, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended December 31, 2010, IDI advised the Fund that IDI retained $149 in front-end sales commissions from the sale of Class A shares and $0, $116 and $0 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
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 December 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the year ended December 31, 2010, there were no significant transfers between investment levels.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities | $ | 15,037,591 | $ | — | $ | — | $ | 15,037,591 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2010, the Fund paid legal fees of $589 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
16 Invesco U.S. Small/Mid Cap Value Fund
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
| Ordinary income | $ | — | $ | 5,135 | ||||
| Return of capital | — | 21,570 | ||||||
| Total distributions | $ | — | $ | 26,705 | ||||
Tax Components of Net Assets at Period-End:
| 2010 | ||||
| Undistributed long-term gain | $ | 673,244 | ||
| Net unrealized appreciation — investments | 3,480,601 | |||
| Temporary book/tax differences | (964 | ) | ||
| Post-October deferrals | (113,975 | ) | ||
| Capital loss carryforward | (3,517,577 | ) | ||
| Shares of beneficial interest | 14,539,888 | |||
| Total net assets | $ | 15,061,217 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $502,511 of capital loss carryforward in the fiscal year ending December 31, 2011.
The Fund utilized $2,486,512 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2010 which expires as follows:
| Capital Loss | ||||
| Expiration | Carryforward* | |||
| December 31, 2017 | $ | 3,517,577 | ||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2010 was $12,715,834 and $22,488,234, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities | $ | 3,532,775 | ||
| Aggregate unrealized (depreciation) of investment securities | (52,174 | ) | ||
| Net unrealized appreciation of investment securities | $ | 3,480,601 | ||
| Cost of investments for tax purposes is $11,556,990. | ||||
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of capital loss carryforward, on December 31, 2010, undistributed net investment income (loss) was increased by $15,527, undistributed net realized gain (loss) was increased by $2,242,110 and shares of beneficial interest decreased by $(2,257,637). This reclassification had no effect on the net assets of the Fund.
17 Invesco U.S. Small/Mid Cap Value Fund
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Year ended December 31, | ||||||||||||||||
| 2010(a) | 2009 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sold: | ||||||||||||||||
| Class A | 80,843 | $ | 685,204 | — | $ | — | ||||||||||
Class B(b) | 2,995 | 24,917 | — | — | ||||||||||||
Class C(b) | 2,535 | 20,509 | — | — | ||||||||||||
| Class Y | 464,061 | 3,823,960 | 196,480 | 1,231,148 | ||||||||||||
| Issured as reinvestment of dividends: | ||||||||||||||||
| Class Y | — | — | 1,020 | 7,800 | ||||||||||||
| Automatic conversion of Class B shares to Class A shares: | ||||||||||||||||
| Class A | 17 | 160 | — | — | ||||||||||||
Class B(b) | (17 | ) | (160 | ) | — | — | ||||||||||
| Reacquired: | ||||||||||||||||
| Class A | (53,703 | ) | (427,591 | ) | — | — | ||||||||||
Class B(b) | (380 | ) | (3,516 | ) | — | — | ||||||||||
Class C(b) | (346 | ) | (2,738 | ) | — | — | ||||||||||
| Class Y | (1,763,149 | ) | (14,179,354 | ) | (210,469 | ) | (1,361,090 | ) | ||||||||
| Net increase (decrease) in share activity | (1,267,144 | ) | $ | (10,058,609 | ) | (12,969 | ) | $ | (122,142 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. In addition 33% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual funds that are also advised by Invesco. | |
| (b) | Commencement date of June 1, 2010. |
18 Invesco U.S. Small/Mid Cap Value Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
| value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
| beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
| of period | (loss)(a) | unrealized) | operations | income | gains | Distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
| Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/10 | $ | 7.80 | $ | (0.03 | ) | $ | 1.93 | $ | 1.90 | $ | — | $ | — | $ | — | $ | 9.70 | 24.36 | % | $ | 361 | 1.41 | %(d)(g) | 1.74 | %(d)(g) | (0.34 | )%(d)(g) | 78 | % | |||||||||||||||||||||||||||
| Year ended 12/31/09 | 5.84 | 0.00 | (e) | 1.96 | 1.96 | — | — | — | 7.80 | 33.39 | (f) | 78 | 1.50 | (g)(h) | 1.50 | (g) | (0.07 | )(g) | 54 | |||||||||||||||||||||||||||||||||||||
| Year ended 12/31/08 | 9.47 | (0.02 | ) | (3.60 | ) | (3.62 | ) | — | (0.01 | ) | (0.01 | ) | 5.84 | (38.21 | )(f) | 58 | 1.42 | (g)(h) | 1.42 | (g) | (0.24 | )(g) | 69 | |||||||||||||||||||||||||||||||||
| Year ended 12/31/07(i) | 10.00 | 0.00 | (e) | (0.52 | ) | (0.52 | ) | — | (0.01 | ) | (0.01 | ) | 9.47 | (5.31 | )(f) | 95 | 1.55 | (g)(j) | 1.55 | (g)(j) | (0.16 | )(g)(i) | 38 | |||||||||||||||||||||||||||||||||
| Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/10(i) | 7.77 | (0.06 | ) | 1.96 | 1.90 | — | — | — | 9.67 | 24.45 | 25 | 2.25 | (d)(j) | 2.99 | (d)(j) | (1.18 | )(d)(j) | 78 | ||||||||||||||||||||||||||||||||||||||
| Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/10(i) | 7.77 | (0.06 | ) | 1.95 | 1.89 | — | — | — | 9.66 | 24.32 | 21 | 2.25 | (d)(j) | 2.99 | (d)(j) | (1.18 | )(d)(j) | 78 | ||||||||||||||||||||||||||||||||||||||
| Class Y | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/10 | 7.82 | (0.01 | ) | 1.95 | 1.94 | — | — | — | 9.76 | 24.81 | 14,654 | 1.16 | (d) | 1.49 | (d) | (0.09 | )(d) | 78 | ||||||||||||||||||||||||||||||||||||||
| Year ended 12/31/09 | 5.86 | 0.01 | 1.96 | 1.97 | (0.01 | ) | — | (0.01 | ) | 7.82 | 33.61 | (f) | 21,910 | 1.25 | (g)(h) | 1.25 | (g) | 0.18 | (g) | 54 | ||||||||||||||||||||||||||||||||||||
| Year ended 12/31/08 | 9.47 | 0.00 | (e) | (3.60 | ) | (3.60 | ) | 0.00 | (e) | (0.01 | ) | (0.01 | ) | 5.86 | (38.03 | )(f) | 16,492 | 1.17 | (g)(h) | 1.17 | (g) | 0.02 | (g) | 69 | ||||||||||||||||||||||||||||||||
| Year ended 12/31/07(i) | 10.00 | 0.00 | (e) | (0.52 | ) | (0.52 | ) | — | (0.01 | ) | (0.01 | ) | 9.47 | (5.21 | )(f) | 20,112 | 1.30 | (g)(j) | 1.30 | (g)(j) | 0.09 | (g)(j) | 38 | |||||||||||||||||||||||||||||||||
| (a) | Calculated using average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $123, $15, $13 and $17,177 for Class A, Class B, Class C and Class Y shares, respectively. | |
| (e) | Amount is less than $0.005 per share. | |
| (f) | Calculated based on the net asset value as of the last business day of the period. | |
| (g) | Ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate was less than 0.00%, 0.01%, 0.01% and 0.00% for the years ended December 31, 2010, 2009, 2008 and 2007, respectively. | |
| (h) | Ratio of Expenses to Average Net Assets, excluding Non-Operating Expense for Class A was 1.50% and 1.42% for the years ended December 31, 2009 and 2008, respectively and for Class Y was 1.25% and 1.17% for the years ended 2009 and 2008, respectively. | |
| (i) | Commencement date of September 27, 2007 for Class A and Class Y shares and June 1, 2010 for Class B and Class C shares. | |
| (j) | Annualized. |
NOTE 11—Significant Event
The Board of Trustees unanimously approved an Agreement and Plan of Reorganization (the “Agreement”) pursuant to which the Fund would transfer all of its assets and liabilities to Invesco Van Kampen Small Cap Value Fund (the “Acquiring Fund”) in exchange for shares of the Acquiring Fund. The Agreement requires approval of the Fund’s shareholders and will be submitted to the shareholders for their consideration at a meeting to be held in or around April 2011.
NOTE 12—Change in Independent Registered Public Accounting Firm (unaudited)
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.
19 Invesco U.S. Small/Mid Cap 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 U.S. Small/Mid Cap 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 U.S. Small/Mid Cap Value Fund (formerly known as Morgan Stanley U.S. Small/Mid Cap Value Fund, one of the funds constituting AIM Sector Funds (Invesco Sector Funds), hereafter referred to as the “Fund”) at December 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 December 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2009 and the financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by other independent auditors whose report dated February 26, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
February 22, 2011
Houston, Texas
20 Invesco U.S. Small/Mid Cap 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 July 1, 2010 through December 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 | (07/01/10) | (12/31/10)1 | Period2 | (12/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
| A | $ | 1,000.00 | $ | 1,295.10 | $ | 8.74 | $ | 1,017.59 | $ | 7.68 | 1.51 | % | ||||||||||||||||||
| B | 1,000.00 | 1,291.10 | 13.05 | 1,013.81 | 11.47 | 2.26 | ||||||||||||||||||||||||
| C | 1,000.00 | 1,291.40 | 13.05 | 1,013.81 | 11.47 | 2.26 | ||||||||||||||||||||||||
| Y | 1,000.00 | 1,297.90 | 7.30 | 1,018.85 | 6.41 | 1.26 | ||||||||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2010 through December 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
21 Invesco U.S. Small/Mid Cap 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 December 31, 2010:
Federal and State Income Tax | ||||
| Corporate Dividends Received Deduction* | 0% | |||
| * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
22 Invesco U.S. Small/Mid Cap 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 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) | 208 | None | ||||||||||
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. 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. | 208 | None | ||||||||||
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 | 226 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
| Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | 208 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
| David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 226 | 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 | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 208 | None | ||||||||||
| Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 208 | None | ||||||||||
| James T. Bunch — 1942 Trustee | 2000 | 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 | 208 | 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, Vice Chairman of Anixter International. 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. | 226 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
| Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 208 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
| Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 208 | Administaff | ||||||||||
| Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 208 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
| Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 208 | None | ||||||||||
| Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 208 | None | ||||||||||
| Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 208 | None | ||||||||||
| 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. | 226 | 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 | 208 | 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 | ||||||||
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 Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||
| Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||
| Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
| Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
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 | ||||||||||||
| Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
| Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
| 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Invesco Distributors, Inc. 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 | |||
Counsel to the Fund | Counsel to the Independent Trustees | Transfer Agent | Custodian | |||
| Stradley Ronon Stevens & Young, LLP | Kramer, Levin, Naftalis & Frankel LLP | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
| 2600 One Commerce Square | 1177 Avenue of the Americas | P.O. Box 4739 | 225 Franklin | |||
| Philadelphia, PA 19103 | New York, NY 10036-2714 | Houston, TX 77210-4739 | Boston, MA 02110-2801 |
T-4
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 available at invesco.com/proxysearch. In addition, this information is available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
| MS-USSMCV-AR-1 | Invesco Distributors, Inc. |
 |
Annual Report to Shareholders | December 31, 2010 | ||
Invesco Van Kampen Comstock Fund | |||
| 2 | Letters to Shareholders | |
| 4 | Performance Summary | |
| 4 | Management Discussion | |
| 6 | Long-Term Fund Performance | |
| 8 | Supplemental Information | |
| 9 | Schedule of Investments | |
| 11 | Financial Statements | |
| 14 | Financial Highlights | |
| 19 | Notes to Financial Statements | |
| 25 | Auditor’s Report | |
| 26 | Fund Expenses | |
| 27 | Tax Information | |
| T-1 | Trustees and Officers | |
Letters to Shareholders
Philip Taylor
Dear Shareholders:
Enclosed is important information about your Fund and its performance.
I’ve always believed that companies have an obligation to communicate regularly with their clients, and I believe that obligation is especially critical in the investment industry.
Our website — invesco.com/us — offers timely market updates and commentary from many of our portfolio managers and other investment professionals, as well as quarterly messages from me. At invesco.com/us, you also can obtain information about your account at any hour of the day or night. I invite you to visit and explore the tools and information we offer.
Invesco’s commitment to investment excellence
Invesco’s acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, broadened our range of investment products available to you. As a strong organization with a single focus — investment management — Invesco today offers investment capabilities and products to meet the needs of virtually any investor. In addition to traditional mutual funds, we manage a broad range of other solutions, including single-country, regional and global investments spanning major equity, fixed income and alternative asset classes.
Investment excellence is our goal across our product line. Let me explain what that means. All of our funds are managed by specialized teams of investment professionals. Each team has a discrete investment perspective and philosophy, and all follow disciplined, repeatable processes governed by strong risk oversight. Our investment-centric culture provides an environment that seeks to reduce distractions, allowing our fund managers to concentrate on what they do best — manage your money.
The importance of a broad product line and investment management expertise is obvious given the markets we’ve experienced over the last two to three years. We’ve seen that investment strategies can outperform or underperform their benchmark indexes for a variety of reasons, including where we are in the market cycle, and whether prevailing economic conditions are favorable or unfavorable for that strategy. That’s why no investment strategy can guarantee top-tier performance at all times. What investors can expect, and what Invesco offers, are funds that are managed according to their stated investment objectives and strategies, with robust risk oversight using consistent, repeatable investment processes that don’t change as short-term external conditions change — investments managed for the long term. This disciplined approach can’t guarantee a profit; no investment can do that, since all involve some measure of risk. But it can ensure that your money is managed the way we said it would be.
This adherence to stated investment objectives and strategies allows your financial adviser to build a diversified portfolio that meets your individual risk tolerance and financial goals. It also means that when your goals change, your financial adviser will be able to find an appropriate investment option to meet your needs.
Invesco’s commitment to you
Invesco’s commitment to you remains stronger than ever. It’s one of the reasons we’ve grown to become one of the world’s largest asset managers.
If you have questions about your account, please contact one of our client service representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, I invite you to email me directly at phil@invesco.com.
I want to thank you for placing your trust in us. All of us at Invesco look forward to serving your investment management needs for many years to come. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco Ltd.
Senior Managing Director, Invesco Ltd.
2 | Invesco Van Kampen Comstock Fund |
Bruce Crockett
Dear Fellow Shareholders:
With 2010 behind us, now is a good time to review our portfolios and ensure that we are adhering to a long-term, diversified investment strategy, which I’ve mentioned in previous letters. The year was notable for a number of reasons, but I’m sure most of us are grateful for a return to more stable markets and growing signs that the worst of the economic crisis is behind us.
Your Board continued to oversee the Invesco Funds with a strong sense of responsibility for your savings and a deep appreciation for your continued trust. As always, we worked throughout 2010 to manage costs and ensure Invesco continued to place investor interests first.
I’m pleased to report that the latest report from Morningstar affirmed the work we’ve done and included a number of positive comments regarding your Board’s oversight of the Invesco Funds.
As background, Morningstar is a leading independent provider of investment research in North America, Europe, Australia and Asia. Morningstar stated, “A fund board’s duty is to represent the interests of fund shareholders, ensuring that the funds that it oversees charge reasonable fees and are run by capable advisers with a sound investment process.”
Morningstar maintained your Fund Board’s “A” grade for Board Quality, praising the Board for taking “meaningful steps in recent years to act in fund shareholders’ interests.”1 These steps included becoming much more proactive and vocal in overseeing how Invesco votes the funds’ shareholders’ proxies and requiring each fund trustee to invest more than one year’s board compensation in Invesco funds, further aligning our interests with those of our shareholders. Morningstar also cited the work I’ve done to make myself more available to fund shareholders via email.
I am also pleased that Morningstar recognized the effort and the Fund Board’s efforts over the past several years to work together with management at Invesco to enhance performance and sharpen the focus on investors.
Let me close by wishing you a happy and prosperous new year. As always, you’re welcome to contact me at bruce@brucecrockett.com with any questions or concerns you have. We look forward to representing you and serving you in the new year.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
| 1 | Among the criteria Morningstar considers when evaluating a fund board are the degree to which the board is independent of the fund company; board members’ financial interests are aligned with those of fund shareholders; the board acts in fund shareholders’ interests; and the board works constructively with company management and investment personnel. Morningstar first awarded an “A” rating to the Invesco Funds board on September 13, 2007; that rating has been maintained in subsequent reports, the most recent of which was released December 17, 2010. Ratings are subject to change, usually every 12 to 24 months. Morningstar ratings range from “A” to “F.” |
3 | Invesco Van Kampen Comstock Fund |
Management’s Discussion of Fund Performance
Performance summary
For the 12 months ended December 31, 2010, Class A shares of Invesco Van Kampen Comstock Fund, at net asset value, outperformed the Fund’s benchmark, the Russell 1000 Value Index. This outperformance largely was due to stock selection and an overweight position in the consumer discretionary sector. Alternatively, stock selection in information technology (IT) detracted the most from the Fund’s performance versus the benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/09 to 12/31/10, 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 | 15.60 | % | ||
| Class B Shares | 15.60 | |||
| Class C Shares | 14.82 | |||
| Class R Shares | 15.32 | |||
| Class Y Shares | 15.97 | |||
| Institutional Class Shares | 15.79 | |||
S&P 500 Index▼ (Broad Market Index) | 15.08 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | 15.51 | |||
| ▼ | Lipper Inc. |
How we invest
Our strategy aims to exploit market inefficiencies by investing in companies that appear undervalued relative to the market in general. Ultimately, we believe that the market will recognize the value in these companies, and we will sell as the stock prices begin to reflect their intrinsic value.1 In addition, investors can take advantage of pricing anomalies by purchasing undervalued stocks before there is a recognizable catalyst.
The Fund’s investable universe includes all large-cap U.S. denominated equities. To distill these investments, we filter for companies with sufficient liquidity. We filter the remaining securities on valuation metrics depending upon the growth or cyclical nature of their business. The result of this filtering process is a pool of highly liquid securities that we believe are statistically inexpensive relative to the
broader market. Companies identified in the filtering process are thoroughly analyzed to assess intrinsic value and their ability to achieve fair value.
We will initiate a purchase of a security only if we believe the potential for stock price appreciation outweighs potential downside risk. To be eligible for inclusion in the Fund, a stock must meet the following criteria:
| n | It is statistically cheap on the basis of its primary valuation criteria, which depends upon the cyclical or growth nature of its business. | |
| n | It is found through rigorous fundamental analysis that the company is undervalued and possesses potential financial strength and improved quality of management for future growth. |
Portfolio construction is bottom up and stock specific, concentrating on individual company fundamental analysis
and valuations. Therefore, while we monitor and are aware of our positions relative to the benchmark, it does not play a major role in the construction of the Fund.
We look to manage risk with portfolio construction, mainly though diversification across all major sectors. We also look to manage risk through the assistance of an independent quantitative risk control group. Risk management is continual. The Fund is regularly reviewed to ensure it is optimally constructed on a risk/ reward basis. Portfolio managers have the final say on construction of the Fund, and a collegial relationship exists between the risk management team and the Fund teams.
Our sell discipline is just as important as the buy decision and is based on the same principles: relative value and fundamentals. While no sale is automatic, a security is typically sold if it meets one or more of the following criteria:
| n | We believe the target price has been realized, and we no longer consider the company undervalued. | |
| n | We determine that a better value opportunity can be found elsewhere. | |
| n | Our research shows that a company is experiencing deteriorating fundamentals beyond what we feel to be a tolerable level, and the trend is likely to be a long-term issue. |
Market conditions and your Fund
Equity markets were choppy during the fiscal year as investors weighed the competing issues of solid corporate profits and soft macroeconomic data. Corporate earnings were largely positive but often were overshadowed by concerns of high unemployment, lack of consumer spending, soft housing data and the possibility of additional Federal Reserve accommodation. After rising
Portfolio Composition
By sector
| Financials | 21.1 | % | ||
| Consumer Discretionary | 17.4 | |||
| Health Care | 11.9 | |||
| Energy | 10.4 | |||
| Information Technology | 10.2 | |||
| Consumer Staples | 9.3 | |||
| Industrials | 6.9 | |||
| Materials | 5.2 | |||
| Telecommunication Services | 4.0 | |||
| Utilities | 1.4 | |||
Money Market Funds Plus | ||||
Other Assets Less Liabilities | 2.2 | |||
Top 10 Equity Holdings*
| 1. | Comcast Corp. | 4.8 | % | |||||
| 2. | Viacom, Inc. | 3.7 | ||||||
| 3. | JPMorgan Chase & Co. | 3.0 | ||||||
| 4. | International Paper Co. | 3.0 | ||||||
| 5. | Pfizer, Inc. | 2.5 | ||||||
| 6. | Halliburton Co. | 2.4 | ||||||
| 7. | Kraft Foods, Inc. | 2.3 | ||||||
| 8. | Chubb Corp. | 2.2 | ||||||
| 9. | Chevron Corp. | 2.1 | ||||||
| 10. | Bank of New York Mellon Corp. | 2.1 | ||||||
Top Five Industries*
| 1. | Pharmaceuticals | 8.2 | % | |||||
| 2. | Cable & Satellite | 7.1 | ||||||
| 3. | Movies & Entertainment | 6.5 | ||||||
| 4. | Other Diversified Financial Services | 6.4 | ||||||
| 5. | Integrated Oil & Gas | 6.4 | ||||||
| Total Net Assets | $8.7 billion | ||||
| Total Number of Holdings* | 77 | ||||
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Van Kampen Comstock Fund |
through April, major equity indexes sold off precipitously in May, as the sovereign debt crisis unfolded in the eurozone. Meanwhile, U.S. economic indicators remained weak, prompting fears of a double dip recession. Uncertainty created by the debt crisis, combined with subdued employment, consumer spending and housing data, added to concerns that the recovery was slowing to a sub-normal growth rate. Just as abruptly, however, the markets reversed course starting in September and rallied through the end of the year on modestly better economic news. Major equity indexes garnered positive returns for the year, and all 10 sectors within the S&P 500 Index posted gains. More economically sensitive sectors, such as consumer discretionary and industrials, had the highest returns, while less economically sensitive sectors, such as health care, had some of the lowest returns.
In this environment, Class A shares of the Fund, at net asset value, outperformed the Fund’s benchmark, the Russell 1000 Value Index. The Fund’s consumer discretionary exposure was the largest contributor to relative and absolute returns. The Fund’s notable overweight position, combined with strong stock selection, positively affected performance. Specifically, the Fund’s holdings in media companies Comcast and Viacom made significant contributions to results as both stocks posted strong double-digit returns during the year.
Financials was another primary driver of relative outperformance when measured against the Russell 1000 Value Index. Specifically, the Fund’s material overweight in the property and casualty insurance industry enhanced shareholder returns. Chubb, a property and casualty insurance company, was one of the largest holdings in the Fund for much of the year. The company’s strong performance is reflective of a strong balance sheet and a well-diversified, conservative underwriting platform. Chubb has done a solid job of returning cash to shareowners through buybacks and dividends, while operating in a difficult pricing environment.
The IT sector was the largest detractor from relative performance. Among technology stocks, the Fund’s overweight exposure combined with unfavorable stock selection among hardware and select Internet-related companies dampened shareholder returns. More specifically, the unexpected departure of Hewlett Packard’s CEO temporarily weighed heavily on the shares. Before
the end of the fiscal year, we sold our holdings in Hewlett Packard. Shares of Yahoo!, a relatively new addition to the portfolio, were weak as investors questioned the rate and sustainability of the recovery in advertising and the economic environment in general.
Stock selection in materials and a small overweight position in health care also detracted from our results relative to the Russell 1000 Value Index.
Toward the end of the period, we pared exposure to select insurance and media stocks, using the proceeds to opportunistically increase the Fund’s energy and industrials exposure.
We believe that market volatility and the market correction that began in the second quarter of 2010, have created opportunities to invest in companies with attractive valuations. Our contrarian philosophy, and deep value approach of buying extremely undervalued companies, capitalized on market volatility and periods of down markets as value was created for new investment opportunities.
Markets experienced a strong recovery during 2010. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult your financial adviser to discuss your individual financial program.
Thank you for your investment in Invesco Van Kampen Comstock Fund and for sharing our long-term investment horizon.
| 1 | Intrinsic value calculations are estimates and, as a result, market price may never reflect intrinsic value estimates, especially for an entire portfolio. |
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, if applicable, index disclosures later in this report.
Kevin Holt
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Holt earned a bachelor’s degree from the University of Iowa. He also earned an M.B.A. from the University of Chicago Graduate School of Business.
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Holt earned a bachelor’s degree from the University of Iowa. He also earned an M.B.A. from the University of Chicago Graduate School of Business.
Devin Armstrong
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Armstrong earned a B.S. in psychology and finance from the University of Illinois. He also earned an M.B.A. in finance from Columbia University.
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Armstrong earned a B.S. in psychology and finance from the University of Illinois. He also earned an M.B.A. in finance from Columbia University.
Jason Leder
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Leder earned a bachelor’s degree from The University of Texas. He also earned an M.B.A. from Columbia University.
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Leder earned a bachelor’s degree from The University of Texas. He also earned an M.B.A. from Columbia University.
Matthew Seinsheimer
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 1998. Mr. Seinsheimer earned a B.B.A from Southern Methodist University. He also earned an M.B.A. from The University of Texas at Austin.
Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 1998. Mr. Seinsheimer earned a B.B.A from Southern Methodist University. He also earned an M.B.A. from The University of Texas at Austin.
James Warwick
Portfolio Manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Warwick earned a B.B.A. from Stephen F. Austin State University. He also earned an M.B.A. from the University of Houston.
Portfolio Manager, is manager of Invesco Van Kampen Comstock Fund. He joined Invesco in 2010. Mr. Warwick earned a B.B.A. from Stephen F. Austin State University. He also earned an M.B.A. from the University of Houston.
5 | Invesco Van Kampen Comstock Fund |
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Index data from 9/30/68, Fund data from 10/7/68
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses and management fees; performance of a market index does not.
Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the
one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $2,500 and $5,000 is the same size as the space between $5,000 and $10,000, and so on.
6 | Invesco Van Kampen Comstock Fund |
Average Annual Total Returns
As of 12/31/10, including maximum applicable sales charges
| Class A Shares | ||||||||
| Inception (10/7/68) | 10.70 | % | ||||||
| 10 | Years | 2.72 | ||||||
| 5 | Years | 0.63 | ||||||
| 1 | Year | 9.27 | ||||||
| Class B Shares | ||||||||
| Inception (10/19/92) | 9.32 | % | ||||||
| 10 | Years | 2.77 | ||||||
| 5 | Years | 1.17 | ||||||
| 1 | Year | 10.60 | ||||||
| Class C Shares | ||||||||
| Inception (10/26/93) | 8.65 | % | ||||||
| 10 | Years | 2.53 | ||||||
| 5 | Years | 1.03 | ||||||
| 1 | Year | 13.82 | ||||||
| Class R Shares | ||||||||
| Inception (10/1/02) | 7.81 | % | ||||||
| 5 | Years | 1.53 | ||||||
| 1 | Year | 15.32 | ||||||
| Class Y Shares | ||||||||
| Inception (10/29/04) | 3.71 | % | ||||||
| 5 | Years | 2.05 | ||||||
| 1 | Year | 15.97 | ||||||
| Institutional Class Shares | ||||||||
| 10 | Years | 3.32 | % | |||||
| 5 | Years | 1.82 | ||||||
| 1 | Year | 15.79 | ||||||
Effective June 1, 2010, Class A, Class B, Class C, Class I and Class R shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C, Class Y and Class R shares, respectively, of Invesco Van Kampen Comstock Fund. Returns shown above for Class A, Class B, Class C, Class R and Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen Comstock Fund. Share class returns will differ from the predecessor fund because of different expenses.
Institutional Class shares incepted on June 1, 2010. Performance shown prior to that date is that of the predecessor fund’s Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class R, Class Y and Institutional Class shares was 0.89%, 1.64%, 1.64%, 1.14%, 0.64% and 0.54%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class R, Class Y and Institutional Class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
7 | Invesco Van Kampen Comstock Fund |
Invesco Van Kampen Comstock Fund’s investment objective is to seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
| n | Unless otherwise stated, information presented in this report is as of December 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 | Class B or Class B5 shares may not be purchased or acquired by exchange from share classes other than Class B or Class B5 shares. Please see the prospectus for more information. | |
| n | Class R shares are available only to certain retirement plans. Please see the prospectus for more information. | |
| n | Class Y shares are available only to certain investors. Please see the prospectus for more information. | |
| n | Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. |
Principal risks of investing in the Fund
| n | Investing in REITs (real estate investment trusts) makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets. | |
| n | Derivative transactions involve risks different from direct investments in underlying securities. Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to certain transactions; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. | |
| n | During an overall stock market decline, stock prices of small- or medium-sized companies often fluctuate more than stock prices of larger companies or the market averages in general. In addition, |
| such companies typically are subject to a greater degree of change in earnings and business prospects than are larger companies and may be less liquid than larger sized companies. In addition, small- and medium-sized companies may have more limited markets, financial resources and product lines, and may lack the depth of management of larger companies. | ||
| n | A value style of investing emphasizes 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 the returns on other styles of investing or the overall stock markets. | |
| n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. | |
| n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Market risk may affect a single issuer, industry, sector of the economy or the market as a whole. Investments in equity securities generally are affected by changes in the stock markets which fluctuate substantially over time, sometimes suddenly and sharply. The value of a convertible security tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying equity security. |
About indexes used in this report
| n | The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | |
| n | The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. |
| The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | ||
| n | The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). | |
| n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
| n | The Chartered Financial Analyst (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
| n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
| n | Industry classifications used in this report are generally classified 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 | ACSTX | |
| Class B Shares | ACSWX | |
| Class C Shares | ACSYX | |
| Class R Shares | ACSRX | |
| Class Y Shares | ACSDX | |
| Institutional Class Shares | ACSHX |
8 | Invesco Van Kampen Comstock Fund |
Schedule of Investments
December 31, 2010
| Shares | Value | |||||||
| Common Stocks–97.8% | ||||||||
| Aerospace & Defense–1.3% | ||||||||
| Honeywell International, Inc. | 2,099,338 | $ | 111,600,808 | |||||
| Aluminum–1.8% | ||||||||
| Alcoa, Inc. | 10,214,854 | 157,206,603 | ||||||
| Asset Management & Custody Banks–2.5% | ||||||||
| Bank of New York Mellon Corp. | 6,010,987 | 181,531,807 | ||||||
| State Street Corp. | 834,444 | 38,668,135 | ||||||
| 220,199,942 | ||||||||
| Automobile Manufacturers–0.7% | ||||||||
General Motors Co.(a) | 1,741,874 | 64,205,476 | ||||||
| Cable & Satellite–7.1% | ||||||||
| Comcast Corp., Class A | 19,165,570 | 421,067,573 | ||||||
DIRECTV, Class A(a) | 1,319,084 | 52,671,024 | ||||||
| Time Warner Cable, Inc. | 2,176,674 | 143,725,784 | ||||||
| 617,464,381 | ||||||||
| Communications Equipment–0.9% | ||||||||
Cisco Systems, Inc.(a) | 3,704,565 | 74,943,350 | ||||||
| Computer Hardware–2.8% | ||||||||
Dell, Inc.(a) | 6,631,418 | 89,855,714 | ||||||
| Hewlett-Packard Co. | 3,671,187 | 154,556,973 | ||||||
| 244,412,687 | ||||||||
| Data Processing & Outsourced Services–0.3% | ||||||||
| Western Union Co. | 1,430,500 | 26,564,385 | ||||||
| Department Stores–0.8% | ||||||||
| J.C. Penney Co., Inc. | 1,274,777 | 41,188,045 | ||||||
| Macy’s, Inc. | 1,187,582 | 30,045,825 | ||||||
| 71,233,870 | ||||||||
| Diversified Banks–2.0% | ||||||||
| U.S. Bancorp | 2,306,815 | 62,214,800 | ||||||
| Wells Fargo & Co. | 3,569,126 | 110,607,215 | ||||||
| 172,822,015 | ||||||||
| Diversified Chemicals–0.4% | ||||||||
| Du Pont (E.I.) de Nemours & Co. | 702,930 | 35,062,148 | ||||||
| Drug Retail–1.6% | ||||||||
| CVS Caremark Corp. | 3,913,597 | 136,075,768 | ||||||
| Electric Utilities–1.1% | ||||||||
| American Electric Power Co., Inc. | 760,778 | 27,372,792 | ||||||
| FirstEnergy Corp. | 1,734,228 | 64,201,121 | ||||||
| 91,573,913 | ||||||||
| Electrical Components & Equipment–0.8% | ||||||||
| Emerson Electric Co. | 1,273,940 | 72,831,150 | ||||||
| General Merchandise Stores–0.5% | ||||||||
| Target Corp. | 647,658 | 38,943,676 | ||||||
| Health Care Distributors–1.4% | ||||||||
| Cardinal Health, Inc. | 3,111,543 | 119,203,212 | ||||||
| Home Improvement Retail–1.7% | ||||||||
| Home Depot, Inc. | 2,004,018 | 70,260,871 | ||||||
| Lowe’s Cos., Inc. | 3,215,752 | 80,651,060 | ||||||
| 150,911,931 | ||||||||
| Household Products–0.3% | ||||||||
| Procter & Gamble Co. | 399,891 | 25,724,988 | ||||||
| Hypermarkets & Super Centers–1.6% | ||||||||
| Wal-Mart Stores, Inc. | 2,526,196 | 136,237,750 | ||||||
| Industrial Conglomerates–3.4% | ||||||||
| General Electric Co. | 6,396,474 | 116,991,510 | ||||||
| Textron, Inc. | 2,430,741 | 57,462,717 | ||||||
| Tyco International Ltd. (Switzerland) | 2,990,007 | 123,905,890 | ||||||
| 298,360,117 | ||||||||
| Industrial Machinery–1.3% | ||||||||
| Ingersoll-Rand PLC (Ireland) | 2,483,715 | 116,958,139 | ||||||
| Integrated Oil & Gas–6.4% | ||||||||
| BP PLC–ADR (United Kingdom) | 1,860,537 | 82,179,919 | ||||||
| Chevron Corp. | 2,011,310 | 183,532,038 | ||||||
| ConocoPhillips | 1,218,284 | 82,965,140 | ||||||
| Royal Dutch Shell PLC–ADR (United Kingdom) | 2,132,133 | 142,383,842 | ||||||
| Total SA–ADR (France) | 1,165,129 | 62,311,099 | ||||||
| 553,372,038 | ||||||||
| Integrated Telecommunication Services–3.1% | ||||||||
| AT&T, Inc. | 3,967,338 | 116,560,390 | ||||||
| Verizon Communications, Inc. | 4,218,666 | 150,943,870 | ||||||
| 267,504,260 | ||||||||
| Internet Software & Services–3.7% | ||||||||
eBay, Inc.(a) | 6,294,604 | 175,178,830 | ||||||
Yahoo!, Inc.(a) | 8,690,386 | 144,521,119 | ||||||
| 319,699,949 | ||||||||
| Investment Banking & Brokerage–2.1% | ||||||||
| Goldman Sachs Group, Inc. | 545,318 | 91,700,675 | ||||||
| Morgan Stanley | 3,400,580 | 92,529,782 | ||||||
| 184,230,457 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Comstock Fund
| Shares | Value | |||||||
| IT Consulting & Other Services–0.6% | ||||||||
| Accenture PLC, Class A (Ireland) | 1,088,586 | $ | 52,785,535 | |||||
| Life & Health Insurance–3.0% | ||||||||
| Aflac, Inc. | 794,507 | 44,834,030 | ||||||
| MetLife, Inc. | 2,689,241 | 119,509,870 | ||||||
| Torchmark Corp. | 1,649,252 | 98,526,315 | ||||||
| 262,870,215 | ||||||||
| Managed Health Care–2.3% | ||||||||
| UnitedHealth Group, Inc. | 4,106,442 | 148,283,621 | ||||||
WellPoint, Inc.(a) | 975,721 | 55,479,496 | ||||||
| 203,763,117 | ||||||||
| Movies & Entertainment–6.5% | ||||||||
| News Corp., Class B | 7,257,160 | 119,162,567 | ||||||
| Time Warner, Inc. | 4,083,046 | 131,351,590 | ||||||
| Viacom, Inc., Class B | 8,045,702 | 318,690,256 | ||||||
| 569,204,413 | ||||||||
| Multi-Utilities–0.3% | ||||||||
| Sempra Energy | 509,296 | 26,727,854 | ||||||
| Oil & Gas Drilling–0.5% | ||||||||
| Noble Corp. (Switzerland) | 1,226,877 | 43,885,390 | ||||||
| Oil & Gas Equipment & Services–3.6% | ||||||||
| Halliburton Co. | 5,127,933 | 209,373,504 | ||||||
Weatherford International Ltd. (Switzerland)(a) | 4,423,547 | 100,856,872 | ||||||
| 310,230,376 | ||||||||
| Other Diversified Financial Services–6.4% | ||||||||
| Bank of America Corp. | 12,846,053 | 171,366,347 | ||||||
Citigroup, Inc.(a) | 26,952,198 | 127,483,897 | ||||||
| JPMorgan Chase & Co. | 6,125,655 | 259,850,285 | ||||||
| 558,700,529 | ||||||||
| Packaged Foods & Meats–3.9% | ||||||||
| Kraft Foods, Inc., Class A | 6,441,208 | 202,962,464 | ||||||
| Unilever NV (Netherlands) | 4,393,118 | 137,943,905 | ||||||
| 340,906,369 | ||||||||
| Paper Products–3.0% | ||||||||
| International Paper Co. | 9,473,804 | 258,066,421 | ||||||
| Personal Products–0.5% | ||||||||
| Avon Products, Inc. | 1,468,583 | 42,677,022 | ||||||
| Pharmaceuticals–8.2% | ||||||||
| Abbott Laboratories | 1,250,657 | 59,918,977 | ||||||
| Bristol-Myers Squibb Co. | 6,554,452 | 173,561,889 | ||||||
| GlaxoSmithKline PLC–ADR (United Kingdom) | 1,231,025 | 48,280,800 | ||||||
| Merck & Co., Inc. | 4,353,374 | 156,895,599 | ||||||
| Pfizer, Inc. | 12,590,201 | 220,454,420 | ||||||
| Roche Holdings AG–ADR (Switzerland) | 1,456,023 | 53,501,565 | ||||||
| 712,613,250 | ||||||||
| Property & Casualty Insurance–3.6% | ||||||||
| Chubb Corp. | 3,234,104 | 192,881,962 | ||||||
| Travelers Cos., Inc. | 2,167,432 | 120,747,637 | ||||||
| 313,629,599 | ||||||||
| Regional Banks–1.4% | ||||||||
| PNC Financial Services Group, Inc. | 1,982,553 | 120,380,618 | ||||||
| Semiconductor Equipment–0.4% | ||||||||
| KLA-Tencor Corp. | 798,408 | 30,850,485 | ||||||
| Semiconductors–1.0% | ||||||||
| Intel Corp. | 3,969,105 | 83,470,278 | ||||||
| Soft Drinks–1.5% | ||||||||
Coca-Cola Co. | 1,539,515 | 101,253,901 | ||||||
| PepsiCo, Inc. | 408,393 | 26,680,315 | ||||||
| 127,934,216 | ||||||||
| Systems Software–0.6% | ||||||||
| Microsoft Corp. | 1,845,860 | 51,536,411 | ||||||
| Wireless Telecommunication Services–0.9% | ||||||||
| Vodafone Group PLC–ADR (United Kingdom) | 3,107,426 | 82,129,269 | ||||||
| Total Common Stocks–97.8% (Cost $8,116,607,616) | 8,499,704,380 | |||||||
| Money Market Funds–1.3% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 58,844,930 | 58,844,930 | ||||||
Premier Portfolio–Institutional Class(b) | 58,844,930 | 58,844,930 | ||||||
| Total Money Market Funds–1.3% (Cost $117,689,860) | 117,689,860 | |||||||
| TOTAL INVESTMENTS–99.1% (Cost $8,234,297,476) | 8,617,394,240 | |||||||
| OTHER ASSETS IN EXCESS OF LIABILITIES–0.9% | 77,240,997 | |||||||
| NET ASSETS–100.0% | $ | 8,694,635,237 | ||||||
Investment Abbreviation:
| ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
| (a) | Non-income producing security. | |
| (b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Comstock Fund
Statement of Assets and Liabilities
December 31, 2010
| Assets: | ||||
| Investments, at value (Cost $8,116,607,616) | $ | 8,499,704,380 | ||
| Investments in affiliated money market funds, at value and cost | 117,689,860 | |||
| Receivables: | ||||
| Fund shares sold | 99,563,215 | |||
| Dividends | 10,737,736 | |||
| Investments sold | 7,864,364 | |||
| Other | 18,565 | |||
| Total assets | 8,735,578,120 | |||
| Liabilities: | ||||
| Payables: | ||||
| Fund shares repurchased | 21,307,542 | |||
| Investments purchased | 12,922,293 | |||
| Distributor and affiliates | 3,801,293 | |||
| Trustees’ deferred compensation and retirement plans | 46,040 | |||
| Accrued expenses | 2,865,715 | |||
| Total liabilities | 40,942,883 | |||
| Net assets | $ | 8,694,635,237 | ||
| Net assets consist of: | ||||
| Capital (par value of $0.01 per share with an unlimited number of shares authorized) | $ | 10,244,132,031 | ||
| Net unrealized appreciation | 383,096,764 | |||
| Accumulated undistributed net investment income | 2,892,531 | |||
| Accumulated net realized gain (loss) | (1,935,486,089 | ) | ||
| Net assets | $ | 8,694,635,237 | ||
| Maximum Offering Price Per Share: | ||||
| Class A shares: | ||||
| Net asset value and redemption price per share (Based on net assets of $5,760,670,026 and 366,207,702 shares of beneficial interest issued and outstanding) | $ | 15.73 | ||
| Maximum sales charge (5.50% of offering price) | 0.92 | |||
| Maximum offering price to public | $ | 16.65 | ||
| Class B shares: | ||||
| Net asset value and offering price per share (based on net assets of $547,059,889 and 34,776,601 shares of beneficial interest issued and outstanding) | $ | 15.73 | ||
| Class C shares: | ||||
| Net asset value and offering price per share (based on net assets of $506,742,461 and 32,198,669 shares of beneficial interest issued and outstanding) | $ | 15.74 | ||
| Class R shares: | ||||
| Net asset value and offering price per share (based on net assets of $184,926,636 and 11,755,122 shares of beneficial interest issued and outstanding) | $ | 15.73 | ||
| Class Y shares: | ||||
| Net asset value and offering price per share (based on net assets of $1,530,636,094 and 97,321,477 shares of beneficial interest issued and outstanding) | $ | 15.73 | ||
| Institutional Class shares: | ||||
| Net asset value and offering price per share (based on net assets of $164,600,131 and 10,472,991 shares of beneficial interest issued and outstanding) | $ | 15.72 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Comstock Fund
Statement of Operations
For the year ended December 31, 2010
| Investment income: | ||||
| Dividends (net of foreign withholding taxes of $1,224,547) | $ | 184,347,874 | ||
| Dividends from affiliated money market funds | 70,743 | |||
| Interest | 71,170 | |||
| Total income | 184,489,787 | |||
| Expenses: | ||||
| Investment advisory fee | 31,568,460 | |||
| Distribution fees | ||||
| Class A | 13,784,348 | |||
| Class B | 1,531,304 | |||
| Class C | 5,036,908 | |||
| Class R | 845,506 | |||
| Transfer agent fees — A, B, C, R and Y | 14,532,965 | |||
| Transfer agent fees — Institutional | 35,443 | |||
| Reports to shareholders | 2,046,378 | |||
| Administrative services fees | 888,650 | |||
| Custody | 397,402 | |||
| Professional fees | 210,003 | |||
| Trustees’ and officers’ fees and benefits | 197,588 | |||
| Registration fees | 136,443 | |||
| Other | 216,402 | |||
| Total expenses | 71,427,800 | |||
| Expense reduction | 91,147 | |||
| Net expenses | 71,336,653 | |||
| Net investment income | 113,153,134 | |||
| Realized and unrealized gain (loss): | ||||
| Net realized gain | 293,180,587 | |||
| Unrealized appreciation (depreciation): | ||||
| Beginning of the period | (404,920,858 | ) | ||
| End of the period | 383,096,764 | |||
| Net unrealized appreciation during the period | 788,017,622 | |||
| Net realized and unrealized gain | 1,081,198,209 | |||
| Net increase in net assets from operations | $ | 1,194,351,343 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Van Kampen Comstock Fund
Statements of Changes in Net Assets
For the years ended December 31, 2010 and 2009
| 2010 | 2009 | |||||||
| From investment activities: | ||||||||
| Operations: | ||||||||
| Net investment income | $ | 113,153,134 | $ | 122,428,514 | ||||
| Net realized gain (loss) | 293,180,587 | (401,194,265 | ) | |||||
| Net unrealized appreciation during the period | 788,017,622 | 2,184,567,155 | ||||||
| Change in net assets from operations | 1,194,351,343 | 1,905,801,404 | ||||||
| Distributions from net investment income: | ||||||||
| Class A | (80,694,827 | ) | (83,442,463 | ) | ||||
| Class B | (8,731,269 | ) | (12,344,084 | ) | ||||
| Class C | (3,665,887 | ) | (4,125,698 | ) | ||||
| Class R | (2,071,686 | ) | (1,802,836 | ) | ||||
| Class Y | (22,478,529 | ) | (16,042,251 | ) | ||||
| Institutional Class | (1,244,823 | ) | -0- | |||||
| Total distributions | (118,887,021 | ) | (117,757,332 | ) | ||||
| Net change in net assets from investment activities | 1,075,464,322 | 1,788,044,072 | ||||||
| From capital transactions: | ||||||||
| Proceeds from shares sold | 1,519,319,838 | 1,231,582,190 | ||||||
| Net asset value of shares issued through dividend reinvestment | 111,773,997 | 107,763,185 | ||||||
| Cost of shares repurchased | (2,412,035,776 | ) | (3,003,903,978 | ) | ||||
| Net change in net assets from capital transactions | (780,941,941 | ) | (1,664,558,603 | ) | ||||
| Total increase in net assets | 294,522,381 | 123,485,469 | ||||||
| Net assets: | ||||||||
| Beginning of the period | 8,400,112,856 | 8,276,627,387 | ||||||
| End of the period (including accumulated undistributed net investment income of $2,892,531 and $8,626,418, respectively) | $ | 8,694,635,237 | $ | 8,400,112,856 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Comstock Fund
Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
| Class A shares | ||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Net asset value, beginning of the period | $ | 13.81 | $ | 10.85 | $ | 17.48 | $ | 19.26 | $ | 17.81 | ||||||||||
Net investment income(a) | 0.20 | 0.19 | 0.32 | 0.36 | 0.35 | |||||||||||||||
| Net realized and unrealized gain (loss) | 1.93 | 2.95 | (6.48 | ) | (0.69 | ) | 2.43 | |||||||||||||
| Total from investment operations | 2.13 | 3.14 | (6.16 | ) | (0.33 | ) | 2.78 | |||||||||||||
| Less: | ||||||||||||||||||||
| Distributions from net investment income | 0.21 | 0.18 | 0.32 | 0.37 | 0.38 | |||||||||||||||
| Distributions from net realized gain | -0- | -0- | 0.15 | 1.08 | 0.95 | |||||||||||||||
| Total distributions | 0.21 | 0.18 | 0.47 | 1.45 | 1.33 | |||||||||||||||
| Net asset value, end of the period | $ | 15.73 | $ | 13.81 | $ | 10.85 | $ | 17.48 | $ | 19.26 | ||||||||||
| Total return | 15.60 | %(b) | 29.45 | %(c) | (35.89 | )%(c) | (1.89 | )%(c) | 16.06 | %(c) | ||||||||||
| Net assets at end of the period (in millions) | $ | 5,760.7 | $ | 5,759.4 | $ | 5,798.8 | $ | 12,091.9 | $ | 13,686.1 | ||||||||||
| Ratio of expenses to average net assets | 0.86 | %(d) | 0.89 | % | 0.84 | % | 0.78 | % | 0.80 | % | ||||||||||
| Ratio of net investment income to average net assets | 1.39 | %(d) | 1.63 | % | 2.16 | % | 1.82 | % | 1.92 | % | ||||||||||
Portfolio turnover(e) | 18 | % | 14 | % | 19 | % | 22 | % | 26 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $5,527,004. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Comstock Fund
Financial Highlights—(continued)
| Class B shares | ||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Net asset value, beginning of the period | $ | 13.81 | $ | 10.85 | $ | 17.49 | $ | 19.26 | $ | 17.81 | ||||||||||
Net investment income(a) | 0.20 | 0.19 | 0.32 | 0.23 | 0.21 | |||||||||||||||
| Net realized and unrealized gain (loss) | 1.93 | 2.95 | (6.49 | ) | (0.68 | ) | 2.43 | |||||||||||||
| Total from investment operations | 2.13 | 3.14 | (6.17 | ) | (0.45 | ) | 2.64 | |||||||||||||
| Less: | ||||||||||||||||||||
| Distributions from net investment income | 0.21 | 0.18 | 0.32 | 0.24 | 0.24 | |||||||||||||||
| Distributions from net realized gain | -0- | -0- | 0.15 | 1.08 | 0.95 | |||||||||||||||
| Total distributions | 0.21 | 0.18 | 0.47 | 1.32 | 1.19 | |||||||||||||||
| Net asset value, end of the period | $ | 15.73 | $ | 13.81 | $ | 10.85 | $ | 17.49 | $ | 19.26 | ||||||||||
| Total return | 15.60 | %(b)(c) | 29.45 | %(d)(e) | (35.93 | )%(d)(e) | (2.46 | )%(d)(e) | 15.21 | %(e) | ||||||||||
| Net assets at end of the period (in millions) | $ | 547.1 | $ | 756.5 | $ | 906.3 | $ | 1,991.6 | $ | 2,518.3 | ||||||||||
| Ratio of expenses to average net assets | 0.86 | %(c)(f) | 0.89 | %(d) | 0.84 | %(d) | 1.41 | %(d) | 1.55 | % | ||||||||||
| Ratio of net investment income to average net assets | 1.39 | %(c)(f) | 1.64 | %(d) | 2.16 | %(d) | 1.19 | %(d) | 1.17 | % | ||||||||||
Portfolio turnover(g) | 18 | % | 14 | % | 19 | % | 22 | % | 26 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | The total return, ratio of expenses to average net assets and ratio of net investment income to average net assets reflect actual 12b-1 fees of 0.25%. | |
| (d) | The total return, ratio of expenses to average net assets and ratio of net investment income to average net assets reflect actual 12b-1 fees of less than 1%. | |
| (e) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% at the beginning of the sixth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (f) | Ratios are based on average daily net assets (000’s omitted) of $612,522. | |
| (g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Van Kampen Comstock Fund
Financial Highlights—(continued)
| Class C shares | ||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Net asset value, beginning of the period | $ | 13.81 | $ | 10.86 | $ | 17.49 | $ | 19.27 | $ | 17.82 | ||||||||||
Net investment income(a) | 0.09 | 0.10 | 0.21 | 0.21 | 0.21 | |||||||||||||||
| Net realized and unrealized gain (loss) | 1.94 | 2.94 | (6.48 | ) | (0.69 | ) | 2.43 | |||||||||||||
| Total from investment operations | 2.03 | 3.04 | (6.27 | ) | (0.48 | ) | 2.64 | |||||||||||||
| Less: | ||||||||||||||||||||
| Distributions from net investment income | 0.10 | 0.09 | 0.21 | 0.22 | 0.24 | |||||||||||||||
| Distributions from net realized gain | -0- | -0- | 0.15 | 1.08 | 0.95 | |||||||||||||||
| Total distributions | 0.10 | 0.09 | 0.36 | 1.30 | 1.19 | |||||||||||||||
| Net asset value, end of the period | $ | 15.74 | $ | 13.81 | $ | 10.86 | $ | 17.49 | $ | 19.27 | ||||||||||
| Total return | 14.82 | %(b) | 28.37 | %(c) | (36.35 | )%(c) | (2.63 | )%(c) | 15.20 | %(c) | ||||||||||
| Net assets at end of the period (in millions) | $ | 506.7 | $ | 538.0 | $ | 544.6 | $ | 1,243.1 | $ | 1,495.8 | ||||||||||
| Ratio of expenses to average net assets | 1.61 | %(d) | 1.64 | % | 1.59 | % | 1.53 | % | 1.55 | % | ||||||||||
| Ratio of net investment income to average net assets | 0.64 | %(d) | 0.87 | % | 1.41 | % | 1.07 | % | 1.17 | % | ||||||||||
Portfolio turnover(e) | 18 | % | 14 | % | 19 | % | 22 | % | 26 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $503,691. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
16 Invesco Van Kampen Comstock Fund
Financial Highlights—(continued)
| Class R shares | ||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Net asset value, beginning of the period | $ | 13.81 | $ | 10.85 | $ | 17.49 | $ | 19.26 | $ | 17.81 | ||||||||||
Net investment income(a) | 0.16 | 0.15 | 0.28 | 0.31 | 0.30 | |||||||||||||||
| Net realized and unrealized gain (loss) | 1.93 | 2.96 | (6.49 | ) | (0.68 | ) | 2.43 | |||||||||||||
| Total from investment operations | 2.09 | 3.11 | (6.21 | ) | (0.37 | ) | 2.73 | |||||||||||||
| Less: | ||||||||||||||||||||
| Distributions from net investment income | 0.17 | 0.15 | 0.28 | 0.32 | 0.33 | |||||||||||||||
| Distributions from net realized gain | -0- | -0- | 0.15 | 1.08 | 0.95 | |||||||||||||||
| Total distributions | 0.17 | 0.15 | 0.43 | 1.40 | 1.28 | |||||||||||||||
| Net asset value, end of the period | $ | 15.73 | $ | 13.81 | $ | 10.85 | $ | 17.49 | $ | 19.26 | ||||||||||
| Total return | 15.32 | %(b) | 29.13 | %(c) | (36.09 | )%(c) | (2.09 | )%(c) | 15.78 | %(c) | ||||||||||
| Net assets at end of the period (in millions) | $ | 184.9 | $ | 165.0 | $ | 130.7 | $ | 296.2 | $ | 274.3 | ||||||||||
| Ratio of expenses to average net assets | 1.11 | %(d) | 1.14 | % | 1.09 | % | 1.03 | % | 1.05 | % | ||||||||||
| Ratio of net investment income to average net assets | 1.14 | %(d) | 1.35 | % | 1.91 | % | 1.56 | % | 1.67 | % | ||||||||||
Portfolio turnover(e) | 18 | % | 14 | % | 19 | % | 22 | % | 26 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period. These returns include combined Rule 12b-1 fees and service fees of up to 0.50% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $169,101. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
17 Invesco Van Kampen Comstock Fund
Financial Highlights—(continued)
| Class Y sharesˆ | ||||||||||||||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Net asset value, beginning of the period | $ | 13.80 | $ | 10.85 | $ | 17.48 | $ | 19.25 | $ | 17.80 | ||||||||||
Net investment income(a) | 0.23 | 0.21 | 0.35 | 0.40 | 0.40 | |||||||||||||||
| Net realized and unrealized gain (loss) | 1.94 | 2.95 | (6.48 | ) | (0.68 | ) | 2.43 | |||||||||||||
| Total from investment operations | 2.17 | 3.16 | (6.13 | ) | (0.28 | ) | 2.83 | |||||||||||||
| Less: | ||||||||||||||||||||
| Distributions from net investment income | 0.24 | 0.21 | 0.35 | 0.41 | 0.43 | |||||||||||||||
| Distributions from net realized gain | -0- | -0- | 0.15 | 1.08 | 0.95 | |||||||||||||||
| Total distributions | 0.24 | 0.21 | 0.50 | 1.49 | 1.38 | |||||||||||||||
| Net asset value, end of the period | $ | 15.73 | $ | 13.80 | $ | 10.85 | $ | 17.48 | $ | 19.25 | ||||||||||
| Total return | 15.97 | %(b) | 29.67 | %(c) | (35.73 | )%(c) | (1.59 | )%(c) | 16.36 | %(c) | ||||||||||
| Net assets at end of the period (in millions) | $ | 1,530.6 | $ | 1,181.2 | $ | 896.2 | $ | 1,857.4 | $ | 1,858.2 | ||||||||||
| Ratio of expenses to average net assets | 0.61 | %(d) | 0.64 | % | 0.59 | % | 0.53 | % | 0.55 | % | ||||||||||
| Ratio of net investment income to average net assets | 1.65 | %(d) | 1.85 | % | 2.41 | % | 2.07 | % | 2.16 | % | ||||||||||
Portfolio turnover(e) | 18 | % | 14 | % | 19 | % | 22 | % | 26 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $1,285,908. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
| On June 1, 2010, the Fund’s former Class I shares were reorganized into Class Y shares. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
18 Invesco Van Kampen Comstock Fund
Financial Highlights—(continued)
| Institutional Class | ||||
| June 1, 2010 | ||||
| (Commencement of | ||||
| operations) to | ||||
| December 31, 2010 | ||||
| Net asset value, beginning of the period | $ | 13.33 | ||
Net investment income(a) | 0.14 | |||
| Net realized and unrealized gain | 2.44 | |||
| Total from investment operations | 2.58 | |||
| Less distributions from net investment income | 0.19 | |||
| Net asset value, end of the period | $ | 15.72 | ||
Total return(b) | 19.53 | % | ||
| Net assets at end of the period (in millions) | $ | 164.6 | ||
| Ratio of expenses to average net assets | 0.49 | %(c) | ||
| Ratio of net investment income to average net assets | 1.68 | %(c) | ||
Portfolio turnover(d) | 18 | % | ||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $121,473. | |
| (d) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Notes to Financial Statements
December 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Comstock 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 Van Kampen Comstock Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B, Class C and Class R shares received the corresponding class of shares of the Fund and holders of the Acquired Fund’s Class I shares received Class Y shares of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Class Y shares of the Fund throughout this report. Institutional Class shares commenced operations on the Reorganization Date.
The Fund’s investment objective is to seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
The Fund currently consists of six different classes of shares: Class A, Class B, Class C, Class R, Class Y and Institutional Class. Class A shares are sold with a front-end sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges (“CDSC”). Class B shares and Class C shares are sold with a CDSC. Class R, Class Y and Institutional Class shares are sold at net asset value. Effective November 30, 2010, new or additional investments in Class B shares are no longer permitted. Existing shareholders of Class B shares may continue to reinvest dividends and capital gains distributions in Class B shares until they convert. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert. 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.
19 Invesco Van Kampen Comstock Fund
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
| A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
| Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
| Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
| Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
| Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
| Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
| Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
| The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
| Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 |
20 Invesco Van Kampen Comstock Fund
| and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | ||
| D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
| The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
| G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
| H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Net Assets | Rate | |||
| First $1 billion | 0 | .50% | ||
| Next $1 billion | 0 | .45% | ||
| Next $1 billion | 0 | .40% | ||
| Over $3 billion | 0 | .35% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $13,402,063 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of master intergroup sub-advisory contracts between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Class A, Class B, Class C, Class R, Class Y and Institutional Class shares to 0.89%, 1.64%, 1.64%, 1.14%, 0.64% and 0.64% 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 and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the period June 1, 2010 to December 31, 2010, the Adviser waived advisory fees of $91,147.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the
21 Invesco Van Kampen Comstock Fund
Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $210,524 to VKII. For the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended December 31, 2010 IIS was paid $8,048,924 for providing such services. Prior to the Reorganization, the Acquired Fund paid $2,461,505 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares and Class C shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $9,180,231 to VKFI.
For the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to December 31, 2010, IDI advised the Fund that IDI retained $230,684 in front-end sales commissions from the sale of Class A shares and $1,114, $334,200 and $6,698 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. Prior to the Reorganization, VKFI retained $342,102 in front-end sales commissions from the sale of Class A shares and $312,132 for CDSC imposed on redemptions by shareholders.
Prior to the Reorganization, the Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of the Acquiring Fund, totaling $29,828.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the year ended December 31, 2010, there were no significant transfers between investment levels.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Equity Securities | $ | 8,563,892,675 | $ | 53,501,565 | $ | — | $ | 8,617,394,240 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to
22 Invesco Van Kampen Comstock Fund
Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended December 31, 2010, the Fund paid legal fees of $6,071 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. Prior to the Reorganization, the Acquired Fund recognized expense of $93,180 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
| Ordinary income | $ | 118,887,021 | $ | 117,757,332 | ||||
Tax Components of Net Assets at Period-End:
| 2010 | ||||
| Undistributed ordinary income | $ | 3,091,137 | ||
| Net unrealized appreciation — investments | 369,635,469 | |||
| Temporary book/tax differences | (46,040 | ) | ||
| Capital loss carryforward | (1,922,177,360 | ) | ||
| Shares of beneficial interest | 10,244,132,031 | |||
| Total net assets | $ | 8,694,635,237 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $290,253,041 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2010 which expires as follows:
| Capital Loss | ||||
| Expiration | Carryforward* | |||
| December 31, 2016 | $ | 707,023,900 | ||
| December 31, 2017 | 1,215,153,460 | |||
| Total capital loss carryforward | $ | 1,922,177,360 | ||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2010 was $1,465,673,046 and $2,152,898,582, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
| Aggregate unrealized appreciation of investment securities | $ | 1,092,805,031 | ||
| Aggregate unrealized (depreciation) of investment securities | (723,169,562 | ) | ||
| Net unrealized appreciation of investment securities | $ | 369,635,469 | ||
| Cost of investments for tax purposes is $8,247,758,771. | ||||
23 Invesco Van Kampen Comstock Fund
NOTE 8—Share Information
For the years ended December 31, 2010 and 2009, transactions were as follows:
| Summary of Share Activity | ||||||||||||||||
| For the | For the | |||||||||||||||
| year ended | year ended | |||||||||||||||
| December 31, 2010(a) | December 31, 2009 | |||||||||||||||
| Shares | Value | Shares | Value | |||||||||||||
| Sales: | ||||||||||||||||
| Class A | 45,525,004 | (b) | $ | 655,211,682 | (b) | 61,510,004 | $ | 684,800,360 | ||||||||
| Class B | 1,854,262 | 26,227,224 | 2,993,009 | 33,232,056 | ||||||||||||
| Class C | 1,440,492 | 20,664,843 | 1,831,727 | 20,283,993 | ||||||||||||
| Class R | 3,375,858 | 48,026,521 | 4,531,964 | 50,485,503 | ||||||||||||
| Class Y | 41,292,215 | 586,527,561 | 37,910,001 | 442,780,278 | ||||||||||||
| Institutional Class | 13,636,920 | 182,662,007 | -0- | -0- | ||||||||||||
| Total sales | 107,124,751 | $ | 1,519,319,838 | 108,776,705 | $ | 1,231,582,190 | ||||||||||
| Dividend reinvestment: | ||||||||||||||||
| Class A | 5,411,360 | $ | 76,300,880 | 7,445,626 | $ | 77,540,378 | ||||||||||
| Class B | 591,072 | 8,320,963 | 1,139,540 | 11,741,307 | ||||||||||||
| Class C | 214,596 | 3,024,170 | 352,065 | 3,397,162 | ||||||||||||
| Class R | 141,414 | 1,996,890 | 165,122 | 1,708,243 | ||||||||||||
| Class Y | 1,478,340 | 20,886,323 | 1,243,573 | 13,376,095 | ||||||||||||
| Institutional Class | 84,733 | 1,244,771 | -0- | -0- | ||||||||||||
| Total dividend reinvestment | 7,921,515 | $ | 111,773,997 | 10,345,926 | $ | 107,763,185 | ||||||||||
| Repurchases: | ||||||||||||||||
| Class A | (101,907,916 | ) | $ | (1,448,576,868 | ) | (186,229,198 | ) | $ | (2,045,085,117 | ) | ||||||
| Class B | (22,464,135 | )(b) | (317,780,219 | )(b) | (32,865,076 | ) | (373,543,920 | ) | ||||||||
| Class C | (8,407,387 | ) | (119,508,940 | ) | (13,397,358 | ) | (146,716,830 | ) | ||||||||
| Class R | (3,708,182 | ) | (52,503,408 | ) | (4,799,001 | ) | (54,073,338 | ) | ||||||||
| Class Y | (31,019,923 | ) | (427,559,377 | ) | (36,198,827 | ) | (384,484,773 | ) | ||||||||
| Institutional Class | (3,248,662 | ) | (46,106,964 | ) | -0- | -0- | ||||||||||
| Total repurchases | (170,756,205 | ) | $ | (2,412,035,776 | ) | (273,489,460 | ) | $ | (3,003,903,978 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 36% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. In addition, 2% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are mutual funds that are advised by Invesco. | |
| (b) | Includes automatic conversion of 6,973,316 Class B shares into 6,973,316 Class A shares at a value of $98,797,748. |
NOTE 9—Change in Independent Registered Public Accounting Firm (unaudited)
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
NOTE 10—Significant Event
The Board of Trustees unanimously approved an Agreement and Plan of Reorganization (the “Agreement”) pursuant to which the Fund would acquire all of the assets and liabilities of Invesco Large Cap Basic Value Fund, Invesco Value Fund and Invesco Value II Fund (the “Target Funds”) in exchange for shares of the Fund. The Agreement requires approval of the Target Funds’ shareholders and will be submitted to the shareholders for their consideration at a meeting to be held in or around April 2011.
24 Invesco Van Kampen Comstock Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Sector Funds (Invesco Sector Funds)
and Shareholders of Invesco Van Kampen Comstock Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Comstock Fund (formerly known as Van Kampen Comstock Fund; one of the funds constituting AIM Sector Funds (Invesco Sector Funds), hereafter referred to as the “Fund”) at December 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of changes in net assets and the financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by other independent auditors whose report dated February 19, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
February 22, 2011
Houston, Texas
25 Invesco Van Kampen Comstock 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 July 1, 2010 through December 31, 2010.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| HYPOTHETICAL | ||||||||||||||||||||||||||||||
| ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
| Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
| Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
| Class | (07/01/10) | (12/31/10)1 | Period2 | (12/31/10) | Period2 | Ratio3 | ||||||||||||||||||||||||
| A | $ | 1,000.00 | $ | 1,231.07 | 4.84 | $ | 1,020.87 | 4.38 | 0.86 | % | ||||||||||||||||||||
| B | 1,000.00 | 1,231.07 | 4.84 | 1,020.87 | 4.38 | 0.86 | ||||||||||||||||||||||||
| C | 1,000.00 | 1,266.44 | 9.04 | 1,017.09 | 8.19 | 1.61 | ||||||||||||||||||||||||
| R | 1,000.00 | 1,229.58 | 6.24 | 1,019.61 | 5.65 | 1.11 | ||||||||||||||||||||||||
| Y | 1,000.00 | 1,233.51 | 3.43 | 1,022.13 | 3.11 | 0.61 | ||||||||||||||||||||||||
| Institutional | 1,000.00 | 1,233.19 | 2.76 | 1,022.74 | 2.50 | 0.49 | ||||||||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2010 through December 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
| 3 | The expense ratio for Class B Shares reflects actual 12b-1 fees of less than 1%. |
26 Invesco Van Kampen Comstock 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 December 31, 2010:
Federal and State Income Tax | ||||
| Qualified Dividend Income* | 100% | |||
| Corporate Dividends Received Deduction* | 100% | |||
| * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
27 Invesco Van Kampen Comstock 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 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) | 208 | None | ||||||||||
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. 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. | 208 | None | ||||||||||
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 | 226 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
| Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | 208 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
| David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 226 | 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 | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 208 | None | ||||||||||
| Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 208 | None | ||||||||||
| James T. Bunch — 1942 Trustee | 2000 | 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 | 208 | 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, Vice Chairman of Anixter International. 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. | 226 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
| Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 208 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
| Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 208 | Administaff | ||||||||||
| Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 208 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
| Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 208 | None | ||||||||||
| Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 208 | None | ||||||||||
| Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 208 | None | ||||||||||
| 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. | 226 | 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 | 208 | 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 | ||||||||
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 Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||
| Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||
| Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
| Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
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 | ||||||||||||
| Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
| Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
| 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Invesco Distributors, Inc. 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 | |||
Counsel to the Fund | Counsel to the Independent Trustees | Transfer Agent | Custodian | |||
| Stradley Ronon Stevens & Young, LLP | Kramer, Levin, Naftalis & Frankel LLP | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
| 2600 One Commerce Square | 1177 Avenue of the Americas | P.O. Box 4739 | 225 Franklin | |||
| Philadelphia, PA 19103 | New York, NY 10036-2714 | Houston, TX 77210-4739 | Boston, MA 02110-2801 |
T-4
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 available at invesco.com/proxysearch. In addition, this information is available on the SEC website,
sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
| VK-COM-AR-1 | Invesco Distributors, Inc. |
 |
| Annual Report to Shareholders | December 31, 2010 | |
Invesco Van Kampen Enterprise Fund
| 2 | Letters to Shareholders | |
| 4 | Performance Summary | |
| 4 | Management Discussion | |
| 6 | Long-Term Fund Performance | |
| 8 | Supplemental Information | |
| 9 | Schedule of Investments | |
| 11 | Financial Statements | |
| 14 | Financial Highlights | |
| 16 | Notes to Financial Statements | |
| 22 | Auditor’s Report | |
| 23 | Fund Expenses | |
| 24 | Tax Information | |
| T-1 | Trustees and Officers |
Letters to Shareholders
Philip Taylor
Dear Shareholders:
Enclosed is important information about your Fund and its performance.
I’ve always believed that companies have an obligation to communicate regularly with their clients, and I believe that obligation is especially critical in the investment industry.
Our website – invesco.com/us – offers timely market updates and commentary from many of our portfolio managers and other investment professionals, as well as quarterly messages from me. At invesco.com/us, you also can obtain information about your account at any hour of the day or night. I invite you to visit and explore the tools and information we offer.
Invesco’s commitment to investment excellence
Invesco’s acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments, broadened our range of investment products available to you. As a strong organization with a single focus – investment management – Invesco today offers investment capabilities and products to meet the needs of virtually any investor. In addition to traditional mutual funds, we manage a broad range of other solutions, including single-country, regional and global investments spanning major equity, fixed income and alternative asset classes.
Investment excellence is our goal across our product line. Let me explain what that means. All of our funds are managed by specialized teams of investment professionals. Each team has a discrete investment perspective and philosophy, and all follow disciplined, repeatable processes governed by strong risk oversight. Our investment-centric culture provides an environment that seeks to reduce distractions, allowing our fund managers to concentrate on what they do best – manage your money.
The importance of a broad product line and investment management expertise is obvious given the markets we’ve experienced over the last two to three years. We’ve seen that investment strategies can outperform or underperform their benchmark indexes for a variety of reasons, including where we are in the market cycle, and whether prevailing economic conditions are favorable or unfavorable for that strategy. That’s why no investment strategy can guarantee top-tier performance at all times. What investors can expect, and what Invesco offers, are funds that are managed according to their stated investment objectives and strategies, with robust risk oversight using consistent, repeatable investment processes that don’t change as short-term external conditions change – investments managed for the long term. This disciplined approach can’t guarantee a profit; no investment can do that, since all involve some measure of risk. But it can ensure that your money is managed the way we said it would be.
This adherence to stated investment objectives and strategies allows your financial adviser to build a diversified portfolio that meets your individual risk tolerance and financial goals. It also means that when your goals change, your financial adviser will be able to find an appropriate investment option to meet your needs.
Invesco’s commitment to you
Invesco’s commitment to you remains stronger than ever. It’s one of the reasons we’ve grown to become one of the world’s largest asset managers.
If you have questions about your account, please contact one of our client service representatives at 800 959 4246. If you have a general Invesco-related question or comment for me, I invite you to email me directly at phil@invesco.com.
I want to thank you for placing your trust in us. All of us at Invesco look forward to serving your investment management needs for many years to come. Thank you for investing with us.
Sincerely,
Philip Taylor
Senior Managing Director, Invesco Ltd.
Senior Managing Director, Invesco Ltd.
2 | Invesco Van Kampen Enterprise Fund |
Bruce Crockett
Dear Fellow Shareholders:
With 2010 behind us, now is a good time to review our portfolios and ensure that we are adhering to a long-term, diversified investment strategy, which I’ve mentioned in previous letters. The year was notable for a number of reasons, but I’m sure most of us are grateful for a return to more stable markets and growing signs that the worst of the economic crisis is behind us.
Your Board continued to oversee the Invesco Funds with a strong sense of responsibility for your savings and a deep appreciation for your continued trust. As always, we worked throughout 2010 to manage costs and ensure Invesco continued to place investor interests first.
I’m pleased to report that the latest report from Morningstar affirmed the work we’ve done and included a number of positive comments regarding your Board’s oversight of the Invesco Funds. As background, Morningstar is a leading independent provider of investment research in North America, Europe, Australia and Asia. Morningstar stated, “A fund board’s duty is to represent the interests of fund shareholders, ensuring that the funds that it oversees charge reasonable fees and are run by capable advisers with a sound investment process.”
Morningstar maintained your Fund Board’s “A” grade for Board Quality, praising the Board for taking “meaningful steps in recent years to act in fund shareholders’ interests.”1 These steps included becoming much more proactive and vocal in overseeing how Invesco votes the funds’ shareholders’ proxies and requiring each fund trustee to invest more than one year’s board compensation in Invesco funds, further aligning our interests with those of our shareholders. Morningstar also cited the work I’ve done to make myself more available to fund shareholders via email.
I am also pleased that Morningstar recognized the effort and the Fund Board’s efforts over the past several years to work together with management at Invesco to enhance performance and sharpen the focus on investors.
Let me close by wishing you a happy and prosperous new year. As always, you’re welcome to contact me at bruce@brucecrockett.com with any questions or concerns you have. We look forward to representing you and serving you in the new year.
Sincerely,
Bruce L. Crockett
Independent Chair
Invesco Funds Board of Trustees
Independent Chair
Invesco Funds Board of Trustees
| 1 | Among the criteria Morningstar considers when evaluating a fund board are the degree to which the board is independent of the fund company; board members’ financial interests are aligned with those of fund shareholders; the board acts in fund shareholders’ interests; and the board works constructively with company management and investment personnel. Morningstar first awarded an “A” rating to the Invesco Funds board on September 13, 2007; that rating has been maintained in subsequent reports, the most recent of which was released December 17, 2010. Ratings are subject to change, usually every 12 to 24 months. Morningstar ratings range from “A” to “F.” |
3 | Invesco Van Kampen Enterprise Fund |
Management’s Discussion of Fund Performance
Performance summary
On June 25, 2010, Erik Voss and Ido Cohen joined the Fund’s management team. A complete listing of your Fund’s managers appears later in this report.
For the 12 months ended December 31, 2010, all share classes of Invesco Van Kampen Enterprise Fund, at net asset value, posted positive, double-digit returns and outperformed the Fund’s broad market/style-specific benchmark, the Russell 1000 Growth Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/09 to 12/31/10, 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 | 20.26 | % | ||
| Class B Shares | 19.32 | |||
| Class C Shares | 19.42 | |||
| Class Y Shares | 20.52 | |||
Russell 1000 Growth Index▼ (Broad Market/Style-Specific Index) | 16.71 | |||
| ▼ | Lipper Inc. |
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process emphasizes rigorous bottom-up analysis of individual companies. We seek to invest in companies with strong or improving fundamentals, attractive valuation relative to growth prospects and earnings expectations that appear fair to conservative.
To narrow our investment universe, we utilize a holistic approach that emphasizes fundamental research and, to a lesser extent, includes quantitative analysis. At the end of this distillation process, we have a set of stocks to analyze in greater depth.
Our fundamental analysis focuses on identifying companies with strong drivers of growth. To accomplish this goal, we conduct rigorous bottom-up analysis in order to develop higher conviction in each company’s prospects for growth.
In our analysis, we develop a mosaic of each company through detailed discussions with company management teams, competitors, distributors, suppliers, Wall Street analysts and customers. We also utilize a variety of valuation techniques based on the company in question, the industry in which the company operates, the stage of the business cycle and other factors that best reflect a company’s value.
Risk management plays an important role in portfolio construction, as our target portfolio attempts to maximize the relationship between risk and return. We seek to accomplish this goal by investing in companies with attractive fundamental prospects for growth, and we divide the portfolio between stable growth stocks and catalyst-driven stocks.
We consider selling a stock for any of the following reasons:
| n | The price target set at purchase has been reached. |
| n | There is deterioration in fundamentals. | |
| n | The catalysts for growth are no longer present or are reflected in the stock price. | |
| n | There is a more attractive investment opportunity. |
Market conditions and your Fund
During the Fund’s fiscal year, the U.S. economy showed signs of improvement, indicating that potentially it has transitioned from a contraction phase economy to an expansionary one. Nevertheless, the pace of recovery remained modest, and the transition from government stimulus-induced growth to private economic recovery was uncertain.
The U.S. Federal Reserve’s (the Fed) federal funds target rate remained low, ranging from zero to 0.25%.1 Real gross domestic product (GDP) registered positive growth during the reporting period with annualized increases of 3.7%, 1.7% and 2.6% in the first, second and third quarters of 2010, respectively.2 Inflation, measured by the seasonally-adjusted Consumer Price Index, remained relatively benign. While labor markets improved as layoffs moderated, new hiring remained quite weak. Unemployment, after climbing steadily throughout 2009, fell slightly during 2010 to a rate of 9.4% nationwide as of December 2010.3
While stock market volatility increased significantly during the fiscal year, indexes measuring the performance of large-, mid- and small-cap stocks finished the reporting period with positive, double-digit returns.4 In terms of investment style, growth stocks generally outperformed value stocks. Sectors with the highest returns in the Russell 1000 Growth Index included more economi-
Portfolio Composition
By sector
| Information Technology | 32.9 | % | ||
| Consumer Discretionary | 14.0 | |||
| Industrials | 11.5 | |||
| Health Care | 11.3 | |||
| Energy | 10.7 | |||
| Materials | 10.6 | |||
| Financials | 4.8 | |||
| Telecommunication Services | 2.4 | |||
| Consumer Staples | 0.9 | |||
Money Market Funds Plus | ||||
Other Assets Less Liabilities | 0.9 | |||
Top 10 Holdings*
| 1. | Apple, Inc. | 7.7 | % | |||||
| 2. | Monsanto Co. | 3.6 | ||||||
| 3. | Visa, Inc. | 3.1 | ||||||
| 4. | Google, Inc. | 2.7 | ||||||
| 5. | Potash Corp. of Saskatchewan, Inc. | 2.7 | ||||||
| 6. | Oracle Corp. | 2.5 | ||||||
| 7. | EMC Corp. | 2.4 | ||||||
| 8. | Rovi Corp. | 2.2 | ||||||
| 9. | Goodrich Corp. | 2.0 | ||||||
| 10. | Schlumberger Ltd. | 2.0 | ||||||
Top Five Industries
| 1. | Oil & Gas Equipment & Services | 7.8 | % | |||||
| 2. | Computer Hardware | 7.7 | ||||||
| 3. | Fertilizers & Agricultural Chemicals | 7.1 | ||||||
| 4. | Systems Software | 5.5 | ||||||
| 5. | Internet Software & Services | 4.4 | ||||||
| Total Net Assets | $909.9 million | |||
| Total Number of Holdings* | 75 | |||
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
4 | Invesco Van Kampen Enterprise Fund |
cally sensitive sectors such as consumer discretionary, industrials, materials and telecommunication services. Conversely, the health care and utilities sectors had the lowest returns but were still in positive territory.
The Fund, at net asset value, had positive returns and outperformed the Russell 1000 Growth Index for the reporting period. Outperformance was driven primarily by stock selection in the information technology (IT) and consumer discretionary sectors. Over the course of the fiscal year, the Fund outperformed by the widest margin in the IT sector, largely due to stock selection. The leading contributor to Fund performance was Apple. Apple continued to benefit from strong consumer demand for its innovative technology products, including the iPad tablet computer, as well as a new version of the iPhone. Chinese Internet search engine provider Baidu, and customer relationship software developer Salesforce.com, also made key contributions to performance in this sector.
The Fund also outperformed in the consumer discretionary sector due to stock selection. Among the leading contributors to Fund performance from this sector were casino operators Las Vegas Sands and Wynn Resorts, as well as clothing retailer Limited Brands. These companies benefited from improving consumer spending trends. Before the end of the fiscal year, we sold our holdings in Wynn Resorts.
Some of this outperformance was offset by underperformance in other sectors including materials, consumer staples and financials. The Fund underperformed by the widest margin in the materials sector, largely due to stock selection. One of the weakest performing stocks in this sector was Monsanto, a company that produces genetically altered seeds and crop protection products. The Fund also underperformed in the consumer staples sector, primarily due to stock selection. Beverage maker Dr. Pepper/Snapple Group was one of the leading detractors from performance in this sector. Before the end of the fiscal year, we sold our holdings in Dr. Pepper/Snapple Group. Underperformance in the financials sector also was driven by stock selection.
After taking over management responsibilities for the Fund in June, we made several changes to the portfolio. The most significant changes included the sale of some holdings in the consumer discretionary, IT and financials sectors. Proceeds
from the sales of these holdings were used to add exposure to other sectors, including energy, industrials, health care, consumer staples and materials.
The stock market experienced heavy volatility during the last 12 months. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult your financial adviser to discuss your individual financial program.
We thank you for your commitment to Invesco Van Kampen Enterprise Fund and for sharing our long-term investment horizon.
1 U.S. Federal Reserve
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
4 Lipper Inc.
2 Bureau of Economic Analysis
3 Bureau of Labor Statistics
4 Lipper Inc.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Erik Voss
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen Enterprise Fund. Mr. Voss joined Invesco in 2010. He earned a B.S. in mathematics and an M.S. in finance from the University of Wisconsin.
Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen Enterprise Fund. Mr. Voss joined Invesco in 2010. He earned a B.S. in mathematics and an M.S. in finance from the University of Wisconsin.
Ido Cohen
Portfolio manager, is manager of Invesco Van Kampen Enterprise Fund. Mr. Cohen joined Invesco in 2010.
Portfolio manager, is manager of Invesco Van Kampen Enterprise Fund. Mr. Cohen joined Invesco in 2010.
He earned a B.S. in economics from The Wharton School of the University of Pennsylvania.
5 | Invesco Van Kampen Enterprise Fund |
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class
Fund and index data from 12/31/00
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects Fund expenses and management fees; performance of a market index does not.
Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the
one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $2,500 and $5,000 is the same size as the space between 5,000 and $10,000, and so on.
6 | Invesco Van Kampen Enterprise Fund |
Average Annual Total Returns
As of 12/31/10, including maximum applicable sales charges
| Class A Shares | ||||||||
| Inception (1/7/54) | 10.81 | % | ||||||
| 10 | Years | -0.18 | ||||||
| 5 | Years | 4.72 | ||||||
| 1 | Year | 13.63 | ||||||
| Class B Shares | ||||||||
| Inception (12/20/91) | 7.02 | % | ||||||
| 10 | Years | -0.22 | ||||||
| 5 | Years | 4.79 | ||||||
| 1 | Year | 14.32 | ||||||
| Class C Shares | ||||||||
| Inception (7/20/93) | 5.93 | % | ||||||
| 10 | Years | -0.38 | ||||||
| 5 | Years | 5.10 | ||||||
| 1 | Year | 18.42 | ||||||
| Class Y Shares | ||||||||
| Inception (8/12/05) | 6.52 | % | ||||||
| 5 | Years | 6.15 | ||||||
| 1 | Year | 20.52 | ||||||
Effective June 1, 2010, Class A, Class B, Class C and Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Invesco Van Kampen Enterprise Fund. Returns shown above for Class A, Class B, Class C and
Class Y shares are blended returns of the predecessor fund and Invesco Van Kampen Enterprise Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions, changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, and Class Y shares was 1.17%, 1.92%, 1.92% and 0.92%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C and Class Y shares was 1.19%, 1.94%, 1.94% and 0.94%, respectively. The expense ratios presented above may vary from the expense ratios
presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. For shares purchased prior to June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the sixth year. For shares purchased on or after June 1, 2010, the CDSC on Class B shares declines from 5% at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. Class Y shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value.
The performance of the Fund’s share classes will differ primarily due to different sales charge structures and class expenses.
| 1 Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
7 | Invesco Van Kampen Enterprise Fund |
Invesco Van Kampen Enterprise Fund’s investment objective is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common stocks.
investing in a portfolio of securities consisting principally of common stocks.
| n | Unless otherwise stated, information presented in this report is as of December 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 | Class B or Class B5 shares may not be purchased or acquired by exchange from share classes other than Class B or Class B5 shares. Please see the prospectus for more information. | |
| n | Class Y shares are available only to certain investors. Please see the prospectus for more information. |
Principal risks of investing in the Fund
| n | Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets which fluctuate substantially over time, sometimes suddenly and sharply. | |
| n | Risks of derivatives include the possible imperfect correlation between the value of the instruments and the underlying assets; risks of default by the other party to the transaction; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the transactions may not be liquid. Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. | |
| n | Investments in growth-oriented equity securities may have above-average volatility of price movement. The returns on growth securities may or may not move in tandem with the returns on other styles of investing or the overall stock markets. |
| n | The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues. | |
| n | Investing in REITs (real estate investment trusts) makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets. |
About indexes used in this report
| n | The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/serve 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). | |
| n | A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Other information
| n | The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis. | |
| n | The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. | |
| n | Industry classifications used in this report are generally organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and 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 | ACENX | |||
| Class B Shares | ACEOX | |||
| Class C Shares | ACEPX | |||
| Class Y Shares | ACEUX | |||
8 | Invesco Van Kampen Enterprise Fund |
Schedule of Investments
December 31, 2010
| Description | Shares | Value | ||||||
| Common Stocks–99.1% | ||||||||
| Aerospace & Defense–3.1% | ||||||||
| Goodrich Corp. | 212,118 | $ | 18,681,232 | |||||
| Honeywell International, Inc. | 176,984 | 9,408,470 | ||||||
| 28,089,702 | ||||||||
| Air Freight & Logistics–1.3% | ||||||||
| C.H. Robinson Worldwide, Inc. | 143,672 | 11,521,058 | ||||||
| Apparel Retail–2.4% | ||||||||
| Limited Brands, Inc. | 454,313 | 13,961,038 | ||||||
| Ross Stores, Inc. | 123,866 | 7,834,525 | ||||||
| 21,795,563 | ||||||||
| Application Software–2.1% | ||||||||
Citrix Systems, Inc.(a) | 146,454 | 10,018,918 | ||||||
Salesforce.com, Inc.(a) | 69,716 | 9,202,512 | ||||||
| 19,221,430 | ||||||||
| Asset Management & Custody Banks–2.6% | ||||||||
| Ameriprise Financial, Inc. | 234,335 | 13,485,979 | ||||||
| Franklin Resources, Inc. | 94,816 | 10,544,488 | ||||||
| 24,030,467 | ||||||||
| Automobile Manufacturers–0.9% | ||||||||
Ford Motor Co.(a) | 484,203 | 8,129,768 | ||||||
| Biotechnology–3.3% | ||||||||
Dendreon Corp.(a) | 198,507 | 6,931,864 | ||||||
Gilead Sciences, Inc.(a) | 458,050 | 16,599,732 | ||||||
United Therapeutics Corp.(a) | 109,167 | 6,901,538 | ||||||
| 30,433,134 | ||||||||
| Cable & Satellite–3.0% | ||||||||
| Comcast Corp., Class A | 827,388 | 18,177,714 | ||||||
DIRECTV, Class A(a) | 228,735 | 9,133,389 | ||||||
| 27,311,103 | ||||||||
| Casinos & Gaming–1.1% | ||||||||
Las Vegas Sands Corp.(a) | 209,609 | 9,631,534 | ||||||
| Coal & Consumable Fuels–1.8% | ||||||||
| Peabody Energy Corp. | 256,688 | 16,422,898 | ||||||
| Communications Equipment–2.5% | ||||||||
Cisco Systems, Inc.(a) | 550,696 | 11,140,580 | ||||||
| QUALCOMM, Inc. | 240,405 | 11,897,644 | ||||||
| 23,038,224 | ||||||||
| Computer Hardware–7.6% | ||||||||
Apple, Inc.(a) | 215,810 | 69,611,674 | ||||||
| Computer Storage & Peripherals–3.9% | ||||||||
EMC Corp.(a) | 935,345 | 21,419,400 | ||||||
SanDisk Corp.(a) | 142,251 | 7,092,635 | ||||||
Western Digital Corp.(a) | 205,880 | 6,979,332 | ||||||
| 35,491,367 | ||||||||
| Construction & Engineering–0.2% | ||||||||
Foster Wheeler AG (Switzerland)(a) | 52,201 | 1,801,979 | ||||||
| Construction & Farm Machinery & Heavy Trucks–2.0% | ||||||||
| Cummins, Inc. | 64,307 | 7,074,413 | ||||||
| Deere & Co. | 137,980 | 11,459,239 | ||||||
| 18,533,652 | ||||||||
| Consumer Finance–0.6% | ||||||||
| American Express Co. | 127,482 | 5,471,527 | ||||||
| Data Processing & Outsourced Services–3.1% | ||||||||
| Visa, Inc., Class A | 399,702 | 28,131,027 | ||||||
| Diversified Banks–0.5% | ||||||||
| Comerica, Inc. | 117,049 | 4,944,150 | ||||||
| Electronic Manufacturing Services–0.3% | ||||||||
| Tyco Electronics Ltd. (Switzerland) | 70,019 | 2,478,673 | ||||||
| Fertilizers & Agricultural Chemicals–7.1% | ||||||||
| Monsanto Co. | 470,944 | 32,796,540 | ||||||
| Mosaic Co. | 94,671 | 7,229,078 | ||||||
| Potash Corp. of Saskatchewan, Inc. (Canada) | 158,888 | 24,600,629 | ||||||
| 64,626,247 | ||||||||
| General Merchandise Stores–1.5% | ||||||||
Dollar Tree, Inc.(a) | 120,572 | 6,761,678 | ||||||
| Target Corp. | 115,356 | 6,936,356 | ||||||
| 13,698,034 | ||||||||
| Gold–1.7% | ||||||||
| Barrick Gold Corp. (Canada) | 291,333 | 15,493,089 | ||||||
| Health Care Distributors–0.8% | ||||||||
| McKesson Corp. | 97,416 | 6,856,138 | ||||||
| Health Care Equipment–2.0% | ||||||||
| Baxter International, Inc. | 174,204 | 8,818,206 | ||||||
| Covidien PLC (Ireland) | 199,439 | 9,106,385 | ||||||
| 17,924,591 | ||||||||
| Health Care Services–0.5% | ||||||||
Medco Health Solutions, Inc.(a) | 73,768 | 4,519,765 | ||||||
| Hotels, Resorts & Cruise Lines–1.0% | ||||||||
| Starwood Hotels & Resorts Worldwide, Inc. | 148,017 | 8,996,473 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
9 Invesco Van Kampen Enterprise Fund
| Description | Shares | Value | ||||||
| Industrial Machinery–1.6% | ||||||||
| Ingersoll-Rand PLC (Ireland) | 316,456 | $ | 14,901,913 | |||||
| Internet Retail–2.1% | ||||||||
Amazon.com, Inc.(a) | 67,953 | 12,231,540 | ||||||
NetFlix, Inc.(a) | 38,375 | 6,742,487 | ||||||
| 18,974,027 | ||||||||
| Internet Software & Services–4.4% | ||||||||
Baidu, Inc.–ADR (Cayman Islands)(a) | 162,057 | 15,643,362 | ||||||
Google, Inc., Class A(a) | 41,443 | 24,615,899 | ||||||
| 40,259,261 | ||||||||
| IT Consulting & Other Services–1.3% | ||||||||
Cognizant Technology Solutions Corp., Class A(a) | 155,908 | 11,426,497 | ||||||
| Managed Health Care–0.8% | ||||||||
| UnitedHealth Group, Inc. | 197,790 | 7,142,197 | ||||||
| Movies & Entertainment–0.8% | ||||||||
| Walt Disney Co. | 183,030 | 6,865,455 | ||||||
| Oil & Gas Drilling–1.4% | ||||||||
Transocean Ltd. (Switzerland)(a) | 190,115 | 13,214,894 | ||||||
| Oil & Gas Equipment & Services–7.8% | ||||||||
Cameron International Corp.(a) | 199,763 | 10,133,977 | ||||||
| Halliburton Co. | 446,575 | 18,233,657 | ||||||
| National Oilwell Varco, Inc. | 158,039 | 10,628,123 | ||||||
| Schlumberger Ltd. (Netherlands Antilles) | 222,441 | 18,573,823 | ||||||
Weatherford International Ltd. (Switzerland)(a) | 595,346 | 13,573,889 | ||||||
| 71,143,469 | ||||||||
| Oil & Gas Exploration & Production–1.5% | ||||||||
| EOG Resources, Inc. | 146,682 | 13,408,202 | ||||||
| Other Diversified Financial Services–1.0% | ||||||||
| JPMorgan Chase & Co. | 224,520 | 9,524,138 | ||||||
| Packaged Foods & Meats–1.9% | ||||||||
| Mead Johnson Nutrition Co. | 272,477 | 16,961,693 | ||||||
| Pharmaceuticals–2.1% | ||||||||
Hospira, Inc.(a) | 239,061 | 13,313,307 | ||||||
| Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 111,129 | 5,793,155 | ||||||
| 19,106,462 | ||||||||
| Railroads–1.7% | ||||||||
| Union Pacific Corp. | 171,278 | 15,870,619 | ||||||
| Restaurants–0.7% | ||||||||
| McDonald’s Corp. | 84,755 | 6,505,794 | ||||||
| Semiconductors–2.1% | ||||||||
| Broadcom Corp., Class A | 214,041 | 9,321,486 | ||||||
| Xilinx, Inc. | 336,782 | 9,759,942 | ||||||
| 19,081,428 | ||||||||
| Soft Drinks–0.9% | ||||||||
Hansen Natural Corp.(a) | 51,961 | 2,716,521 | ||||||
| PepsiCo, Inc. | 83,358 | 5,445,778 | ||||||
| 8,162,299 | ||||||||
| Specialty Stores–0.6% | ||||||||
| Tiffany & Co. | 83,960 | 5,228,189 | ||||||
| Systems Software–5.5% | ||||||||
| Oracle Corp. | 721,439 | 22,581,041 | ||||||
Red Hat, Inc.(a) | 162,304 | 7,409,178 | ||||||
Rovi Corp.(a) | 325,725 | 20,198,207 | ||||||
| 50,188,426 | ||||||||
| Trading Companies & Distributors–1.0% | ||||||||
| WW Grainger, Inc. | 65,886 | 9,099,515 | ||||||
| Trucking–0.6% | ||||||||
| J.B. Hunt Transport Services, Inc. | 127,276 | 5,194,134 | ||||||
| Wireless Telecommunication Services–2.4% | ||||||||
| America Movil SAB de CV, Ser L–ADR (Mexico) | 160,398 | 9,197,221 | ||||||
American Tower Corp., Class A(a) | 242,228 | 12,508,654 | ||||||
| 21,705,875 | ||||||||
| Total Common Stocks 99.1% | 902,167,754 | |||||||
| Investment Companies–0.0% | ||||||||
| SPDR S&P 500 ETF Trust | 67 | 8,427 | ||||||
| Total Long-Term Investments 99.1% (Cost $712,250,916) | 902,176,181 | |||||||
| Money Market Funds–0.5% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 2,174,241 | 2,174,241 | ||||||
Premier Portfolio–Institutional Class(b) | 2,174,241 | 2,174,241 | ||||||
| Total Money Market Funds 0.5% (Cost $4,348,482) | 4,348,482 | |||||||
| TOTAL INVESTMENTS–99.6% (Cost $716,599,398) | 906,524,663 | |||||||
| OTHER ASSETS IN EXCESS OF LIABILITIES–0.4% | 3,376,847 | |||||||
| NET ASSETS–100.0% | $ | 909,901,510 | ||||||
Investment Abbreviations:
| ADR – American Depositary Receipt |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
| (a) | Non-income producing security. | |
| (b) | The money market and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
10 Invesco Van Kampen Enterprise Fund
Statement of Assets and Liabilities
December 31, 2010
| Assets: | ||||
| Investments, at value (Cost $712,250,916) | $ | 902,176,181 | ||
| Investments in affiliated money market funds, at value and cost | 4,348,482 | |||
| Receivables: | ||||
| Investments sold | 4,489,962 | |||
| Dividends | 518,318 | |||
| Fund shares sold | 92,041 | |||
| Other | 6,250 | |||
| Total assets | 911,631,234 | |||
| Liabilities: | ||||
| Payables: | ||||
| Investments purchased | 309,617 | |||
| Fund shares repurchased | 429,300 | |||
| Distributor and affiliates | 533,895 | |||
| Trustee deferred compensation and retirement plans | 5,598 | |||
| Accrued expenses | 451,314 | |||
| Total liabilities | 1,729,724 | |||
| Net assets | $ | 909,901,510 | ||
| Net assets consist of: | ||||
| Capital (Par value of $0.01 per share with an unlimited number of shares authorized) | $ | 986,801,433 | ||
| Net unrealized appreciation | 189,925,265 | |||
| Accumulated net investment income (loss) | (5,598 | ) | ||
| Accumulated net realized gain (loss) | (266,819,590 | ) | ||
| Net assets | $ | 909,901,510 | ||
| Maximum offering price per share: | ||||
| Class A shares: | ||||
| Net asset value and redemption price per share (Based on net assets of $839,820,699 and 47,951,182 shares of beneficial interest issued and outstanding) | $ | 17.51 | ||
| Maximum sales charge (5.50% of offering price) | 1.02 | |||
| Maximum offering price to public | $ | 18.53 | ||
| Class B Shares: | ||||
| Net asset value and offering price per share (Based on net assets of $54,979,717 and 3,560,300 shares of beneficial interest issued and outstanding) | $ | 15.44 | ||
| Class C Shares: | ||||
| Net asset value and offering price per share (Based on net assets of $12,881,057 and 824,726 shares of beneficial interest issued and outstanding) | $ | 15.62 | ||
| Class Y Shares: | ||||
| Net asset value and offering price per share (Based on net assets of $2,220,037 and 125,969 shares of beneficial interest issued and outstanding) | $ | 17.62 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
11 Invesco Van Kampen Enterprise Fund
Statement of Operations
For the Year Ended December 31, 2010
| Investment income: | ||||
| Dividends from unaffiliated investments (net of foreign withholding taxes of $30,721) | $ | 7,339,546 | ||
| Dividends from affiliated money market funds (includes securities lending income of $2,160) | 33,255 | |||
| Interest | 40,418 | |||
| Total income | 7,413,219 | |||
| Expenses: | ||||
| Investment advisory fee | 4,208,150 | |||
Distribution (12b-1) and service fees | ||||
| Class A | 1,892,849 | |||
| Class B | 572,563 | |||
| Class C | 118,550 | |||
| Transfer agent fees | 2,328,184 | |||
| Administrative services fees | 189,950 | |||
| Reports to shareholders | 111,466 | |||
| Custody | 83,288 | |||
| Registration fees | 68,832 | |||
| Professional fees | 52,172 | |||
| Trustees’ and officers’ fees and benefits | 35,528 | |||
| Other | 29,267 | |||
| Total expenses | 9,690,799 | |||
| Expense reduction | 27,594 | |||
| Net expenses | 9,663,205 | |||
| Net investment income (loss) | (2,249,986 | ) | ||
| Realized and unrealized gain (loss): | ||||
| Realized gain (loss): | ||||
| Investments | 247,556,365 | |||
| Foreign currency transactions | (153,395 | ) | ||
| Net realized gain | 247,402,970 | |||
| Unrealized appreciation (depreciation): | ||||
| Beginning of the period | 278,091,863 | |||
| End of the period | 189,925,265 | |||
| Net unrealized appreciation (depreciation) during the period | (88,166,598 | ) | ||
| Net realized and unrealized gain | 159,236,372 | |||
| Net increase in net assets from operations | $ | 156,986,386 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
12 Invesco Van Kampen Enterprise Fund
Statements of Changes in Net Assets
For the years ended December 31, 2010 and 2009
| 2010 | 2009 | |||||||
| Operations: | ||||||||
| Net investment income (loss) | $ | (2,249,986 | ) | $ | (1,442,933 | ) | ||
| Net realized gain | 247,402,970 | 74,694,342 | ||||||
| Net unrealized appreciation (depreciation) during the period | (88,166,598 | ) | 285,583,419 | |||||
| Net change in net assets from operations | 156,986,386 | 358,834,828 | ||||||
| From capital transactions: | ||||||||
| Proceeds from shares sold | 25,945,273 | 29,780,461 | ||||||
| Cost of shares repurchased | (131,595,998 | ) | (139,862,244 | ) | ||||
| Net change in net assets from capital transactions | (105,650,725 | ) | (110,081,783 | ) | ||||
| Total increase in net assets | 51,335,661 | 248,753,045 | ||||||
| Net assets: | ||||||||
| Beginning of the period | 858,565,849 | 609,812,804 | ||||||
| End of the period (Including accumulated undistributed net investment income (loss) of $(5,598) and $(1,062,396), respectively) | $ | 909,901,510 | $ | 858,565,849 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
13 Invesco Van Kampen Enterprise Fund
Financial Highlights
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
| Year ended December 31, | ||||||||||||||||||||
| Class A shares | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| Net asset value, beginning of the period | $ | 14.56 | $ | 8.78 | $ | 15.75 | $ | 14.06 | $ | 13.20 | ||||||||||
Net investment income (loss)(a) | (0.03 | ) | (0.01 | ) | 0.02 | 0.04 | (0.01 | ) | ||||||||||||
| Net realized and unrealized gain (loss) | 2.98 | 5.79 | (6.97 | ) | 1.68 | 0.87 | ||||||||||||||
| Total from investment operations | 2.95 | 5.78 | (6.95 | ) | 1.72 | 0.86 | ||||||||||||||
| Less distributions from net investment income | -0- | -0- | 0.02 | 0.03 | -0- | |||||||||||||||
| Net asset value, end of the period | $ | 17.51 | $ | 14.56 | $ | 8.78 | $ | 15.75 | $ | 14.06 | ||||||||||
| Total return | 20.26 | %(b) | 65.83 | %(c) | (44.10 | %)(c) | 12.21 | %(c) | 6.52 | %(c) | ||||||||||
| Net assets at end of the period (in millions) | $ | 839.8 | $ | 782.0 | $ | 529.1 | $ | 1,068.5 | $ | 1,082.1 | ||||||||||
| Ratio of expenses to average net assets | 1.08 | %(d) | 1.17 | % | 1.11 | % | 1.05 | % | 1.09 | % | ||||||||||
| Ratio of net investment income (loss) to average net assets | (0.20 | %)(d) | (0.13 | )% | 0.15 | % | 0.27 | % | (0.10 | %) | ||||||||||
Portfolio turnover(e) | 155 | % | 13 | % | 72 | % | 52 | % | 110 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 5.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 0.25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are annualized and based on average net assets (000’s omitted) of $771,961. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| Year ended December 31, | ||||||||||||||||||||
| Class B shares | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| Net asset value, beginning of the period | $ | 12.94 | $ | 7.86 | $ | 14.17 | $ | 12.72 | $ | 12.03 | ||||||||||
Net investment income (loss)(a) | (0.13 | ) | (0.09 | ) | (0.07 | ) | (0.07 | ) | (0.11 | ) | ||||||||||
| Net realized and unrealized gain (loss) | 2.63 | 5.17 | (6.24 | ) | 1.52 | 0.80 | ||||||||||||||
| Total from investment operations | 2.50 | 5.08 | (6.31 | ) | 1.45 | 0.69 | ||||||||||||||
| Net asset value, end of the period | $ | 15.44 | $ | 12.94 | $ | 7.86 | $ | 14.17 | $ | 12.72 | ||||||||||
| Total return | 19.32 | %(b) | 64.63 | %(c) | (44.53 | %)(c) | 11.40 | %(c) | 5.74 | %(c) | ||||||||||
| Net assets at end of the period (In millions) | $ | 55.0 | $ | 63.7 | $ | 56.3 | $ | 156.7 | $ | 208.3 | ||||||||||
| Ratio of expenses to average net assets | 1.83 | %(d) | 1.92 | % | 1.87 | % | 1.82 | % | 1.86 | % | ||||||||||
| Ratio of net investment income (loss) to average net assets | (0.98 | %)(d) | (0.89 | %) | (0.62 | %) | (0.50 | %) | (0.88 | %) | ||||||||||
Portfolio turnover(e) | 155 | % | 13 | % | 72 | % | 52 | % | 110 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 5%, charged on certain redemptions made within one year of purchase and declining to 0% after the fifth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are annualized and based on average net assets (000’s omitted) of $57,256. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
14 Invesco Van Kampen Enterprise Fund
Financial Highlights—(continued)
| Year ended December 31, | ||||||||||||||||||||
| Class C shares | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| Net asset value, beginning of the period | $ | 13.08 | $ | 7.95 | $ | 14.33 | $ | 12.87 | $ | 12.18 | ||||||||||
Net investment income (loss)(a) | (0.13 | ) | (0.09 | ) | (0.07 | ) | (0.07 | ) | (0.11 | ) | ||||||||||
| Net realized and unrealized gain (loss) | 2.67 | 5.22 | (6.31 | ) | 1.53 | 0.80 | ||||||||||||||
| Total from investment operations | 2.54 | 5.13 | (6.38 | ) | 1.46 | 0.69 | ||||||||||||||
| Net asset value, end of the period | $ | 15.62 | $ | 13.08 | $ | 7.95 | $ | 14.33 | $ | 12.87 | ||||||||||
| Total return | 19.42 | %(b) | 64.53 | %(c) | (44.52 | %)(c) | 11.34 | %(c) | 5.67 | %(c) | ||||||||||
| Net assets at end of the period (in millions) | $ | 12.9 | $ | 12.0 | $ | 8.8 | $ | 19.9 | $ | 21.1 | ||||||||||
| Ratio of expenses to average net assets | 1.83 | %(d) | 1.92 | % | 1.87 | % | 1.82 | % | 1.86 | % | ||||||||||
| Ratio of net investment income (loss) to average net assets | (0.95 | %)(d) | (0.88 | %) | (0.62 | %) | (0.50 | %) | (0.88 | %) | ||||||||||
Portfolio turnover(e) | 155 | % | 13 | % | 72 | % | 52 | % | 110 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are annualized and based on average net assets (000’s omitted) of $11,855. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| Year ended December 31, | ||||||||||||||||||||
| Class Y sharesˆ | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| Net asset value, beginning of the period | $ | 14.62 | $ | 8.80 | $ | 15.80 | $ | 14.10 | $ | 13.21 | ||||||||||
Net investment income (loss)(a) | 0.03 | (0.01 | ) | 0.05 | 0.08 | 0.02 | ||||||||||||||
| Net realized and unrealized gain (loss) | 2.97 | 5.83 | (6.99 | ) | 1.68 | 0.87 | ||||||||||||||
| Total from investment operations | 3.00 | 5.82 | (6.94 | ) | 1.76 | 0.89 | ||||||||||||||
| Less distributions from net investment income | -0- | -0- | 0.06 | 0.06 | -0- | |||||||||||||||
| Net asset value, end of the period | $ | 17.62 | $ | 14.62 | $ | 8.80 | $ | 15.80 | $ | 14.10 | ||||||||||
| Total return | 20.52 | %(b) | 66.14 | %(c) | (43.94 | %)(c) | 12.51 | %(c) | 6.74 | %(c) | ||||||||||
| Net assets at end of the period (in millions) | $ | 2.2 | $ | 0.9 | $ | 15.6 | $ | 57.9 | $ | 25.6 | ||||||||||
| Ratio of expenses to average net assets | 0.83 | %(d) | 0.92 | % | 0.85 | % | 0.80 | % | 0.85 | % | ||||||||||
| Ratio of net investment income (loss) to average net assets | 0.21 | %(d) | (0.12 | %) | 0.39 | % | 0.53 | % | 0.17 | % | ||||||||||
Portfolio turnover(e) | 155 | % | 13 | % | 72 | % | 52 | % | 110 | % | ||||||||||
| (a) | Based on average shares outstanding. | |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Does not include sales charges and is not annualized for periods less than one year, if applicable. | |
| (c) | Assumes reinvestment of all distributions for the period. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | |
| (d) | Ratios are annualized and based on average net assets (000’s omitted) of $1,271. | |
| (e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
| ˆ | On June 1, 2010, Class I shares of the predecessor fund were reorganized into Class Y shares of the Fund. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
15 Invesco Van Kampen Enterprise Fund
Notes to Financial Statements
December 31, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen Enterprise 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 Van Kampen Enterprise Fund (the “Acquired Fund”). The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class A, Class B and Class C shares received 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 of the Fund throughout this report.
The Fund’s investment objective is to seek capital appreciation by investing in a portfolio of securities consisting principally of common stocks.
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. Effective November 30, 2010, all Invesco funds closed their Class B shares. Shareholders with investments in Class B shares may continue to hold such shares until they convert to Class A shares, but no additional investments will be accepted in Class B shares on or after November 30, 2010. Any dividends or capital gains distributions may continue to be reinvested in Class B shares until conversion. Also, shareholders in Class B shares will be able to exchange those shares for Class B shares of other Invesco Funds offering such shares until they convert. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase.
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
| A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
| Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
| Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
| Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
| Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. |
16 Invesco Van Kampen Enterprise Fund
| Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
| Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
| The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
| Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
| The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
| C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
| D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to treat a portion of the proceeds from redemptions as distributions for federal income tax purposes. | |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
| The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
| F. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
| G. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. Prior to the Reorganization, incremental transfer agency fees which are unique to each class of shares of the Acquired Fund were charged to the operations of such class. | |
| H. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
| I. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these |
17 Invesco Van Kampen Enterprise Fund
| arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | ||
| J. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. | |
| Many of the products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the securities of the companies in this sector. | ||
| K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
| The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
| L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| Average Net Assets | Rate | |||
| First $1 billion | 0 | .50% | ||
| Next $1 billion | 0 | .45% | ||
| Next $1 billion | 0 | .40% | ||
| Over $3 billion | 0 | .35% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee of $1,764,598 to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Class A, Class B, Class C, and Class Y shares to 1.17%, 1.92%, 1.92% and 0.92%, 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 and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the period ended December 31, 2010, the Adviser waived advisory fees of $27,594.
18 Invesco Van Kampen Enterprise Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco for certain administrative costs incurred in providing accounting services to the Fund. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investments Inc. (“VKII”) provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $27,890 to VKII. For the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as administrative services fees. Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian and fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. IIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. All fees payable by IIS to intermediaries that provide omnibus account services or sub-accounting are charged back to the Fund, subject to certain limitations approved by the Trust’s Board of Trustees. Pursuant to such agreement, for the period ended December 31, 2010, IIS was paid $1,474,133 for providing such services. Prior to the Reorganization, the Acquired Fund paid $455,705 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
Shares of the Fund are distributed by Invesco Distributors, Inc. (“IDI”). The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, and a service plan (collectively, the “Plans”) for Class A shares, Class B shares and Class C shares to compensate IDI for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees of up to 0.25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets.
With respect to Class B and Class C shares, the Fund is authorized to reimburse in future years any distribution related expenses that exceed the maximum annual reimbursement rate for such class, so long as such reimbursement does not cause the Fund to exceed the Class B and Class C maximum annual reimbursement rate, respectively. With respect to Class A shares, distribution related expenses that exceed the maximum annual reimbursement rate for such class are not carried forward to future years and the Fund will not reimburse IDI for any such expenses.
Prior to the Reorganization, the Acquired Fund had entered into master distribution agreements with Van Kampen Funds Inc. (“VKFI”) to serve as the distributor for the Class A, Class B and Class C shares. Pursuant to such agreements, the Acquired Fund paid $1,093,164 to VKFI.
For the year ended December 31, 2010, expenses incurred under these agreements are shown in the Statement of Operations as distribution fees.
Front-end sales commissions and CDSC (collectively the “sales charges”) are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. For the period June 1, 2010 to December 31, 2010, IDI advised the Fund that IDI retained $13,255 front-end sales commissions from the sale of Class A shares and $0, $37,659 and $407 from Class A, Class B and Class C shares, respectively, for CDSC imposed on redemptions by shareholders. Prior to the Reorganization, VKFI retained $15,390 in front-end sales commissions from the sale of Class A shares and $33,251, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
| Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
| Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
| Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the year ended December 31, 2010, there were no significant transfers between levels.
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Equity Securities | $ | 906,524,663 | $ | — | $ | — | $ | 906,524,663 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall
19 Invesco Van Kampen Enterprise Fund
be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
For the period ended December 31, 2010, the Fund paid legal fees of $1,149 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. Prior to the Reorganization, the Acquired Fund recognized expense of $9,320 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, of which a director of the Acquired Fund was a partner of such firm and he and his law firm provided legal services as legal counsel to the Acquired Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Components of Net Assets at Period-End:
| 2010 | ||||
| Net unrealized appreciation — investments | $ | 185,738,693 | ||
| Temporary book/tax differences | (5,598 | ) | ||
| Capital loss carryforward | (262,633,018 | ) | ||
| Shares of beneficial interest | 986,801,433 | |||
| Total net assets | $ | 909,901,510 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $251,530,938 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2010 which expires as follows:
| Capital Loss | ||||
| Expiration | Carryforward* | |||
| December 31, 2011 | $ | 13,921,966 | ||
| December 31, 2017 | 248,711,052 | |||
| Total capital loss carryforward | $ | 262,633,018 | ||
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2010 was $1,226,040,977 and $1,269,541,945, 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 | $ | 192,722,546 | ||
| Aggregate unrealized (depreciation) of investment securities | (6,983,853 | ) | ||
| Net unrealized appreciation of investment securities | $ | 185,738,693 | ||
| Cost of investments for tax purposes is $720,785,970. | ||||
20 Invesco Van Kampen Enterprise Fund
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of expired capital loss carryforward, on December 31, 2010 accumulated net investment income (loss) was increased by $3,306,784, accumulated net realized gain (loss) was increased by $206,299,433 and capital decreased by $209,606,217. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
| Summary of Share Activity | ||||||||||||||||
| Year ended December 31, | ||||||||||||||||
| 2010(a) | 2009 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Sales: | ||||||||||||||||
| Class A | 1,385,190 | (b) | $ | 21,289,852 | (b) | 2,133,542 | $ | 23,608,786 | ||||||||
| Class B | 217,115 | 2,901,381 | 423,722 | 4,126,064 | ||||||||||||
| Class C | 36,166 | 503,920 | 46,891 | 468,129 | ||||||||||||
| Class Y | 78,441 | 1,250,120 | 156,884 | 1,577,482 | ||||||||||||
| Total sales | 1,716,912 | $ | 25,945,273 | 2,761,039 | $ | 29,780,461 | ||||||||||
| Repurchases: | ||||||||||||||||
| Class A | (7,132,488 | ) | (108,213,726 | ) | (8,668,607 | ) | (95,696,997 | ) | ||||||||
| Class B | (1,577,322 | )(b) | (21,373,678 | )(b) | (2,657,115 | ) | (25,761,555 | ) | ||||||||
| Class C | (130,469 | ) | (1,772,408 | ) | (234,188 | ) | (2,277,860 | ) | ||||||||
| Class Y | (14,778 | ) | (236,186 | ) | (1,868,573 | ) | (16,125,832 | ) | ||||||||
| Total repurchases | (8,855,057 | ) | $ | (131,595,998 | ) | (13,428,483 | ) | $ | (139,862,244 | ) | ||||||
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 27% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
| (b) | Includes automatic conversion of 647,211 Class B shares into 572,345 Class A shares at a value of $8,859,309. |
NOTE 10—Significant Event
The Board of Trustees unanimously approved an Agreement and Plan of Reorganization (the “Agreement”) pursuant to which the Fund would transfer all of its assets and liabilities to Invesco Van Kampen American Franchise Fund (the “Acquiring Fund”) in exchange for shares of the Acquiring Fund. The Agreement requires approval of the Fund’s shareholders and will be submitted to the shareholders for their consideration at a meeting to be held in or around April 2011.
NOTE 11—Change in Independent Registered Public Accounting Firm (Unaudited)
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
21 Invesco Van Kampen Enterprise Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Sector Funds (Invesco Sector Funds)
and Shareholders of Invesco Van Kampen Enterprise Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen Enterprise Fund (formerly known as Van Kampen Enterprise Fund; one of the funds constituting AIM Sector Funds (Invesco Sector Funds), hereafter referred to as the “Fund”) at December 31, 2010, the results of its operations, the changes in its net assets and the financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2010 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of changes in net assets and the financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by other independent auditors whose report dated February 19, 2010 expressed an unqualified opinion on those financial statements.
PRICEWATERHOUSECOOPERS LLP
February 22, 2011
Houston, Texas
22 Invesco Van Kampen Enterprise 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 July 1, 2010 through December 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 | (07/01/10) | (12/31/10)1 | Period2 | (12/31/10) | Period2 | Ratio | ||||||||||||||||||||||||
| A | $ | 1,000.00 | $ | 1,255.20 | $ | 6.14 | $ | 1,019.76 | $ | 5.50 | 1.08 | % | ||||||||||||||||||
| B | 1,000.00 | 1,251.22 | 10.38 | 1,015.97 | 9.30 | 1.83 | ||||||||||||||||||||||||
| C | 1,000.00 | 1,251.60 | 10.39 | 1,016.01 | 9.30 | 1.83 | ||||||||||||||||||||||||
| Y | 1,000.00 | 1,256.78 | 4.72 | 1,021.04 | 4.23 | 0.83 | ||||||||||||||||||||||||
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2010 through December 31, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
23 Invesco Van Kampen Enterprise 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 December 31, 2010:
Federal and State Income Tax | ||||
| Long-Term Capital Gain Dividends | $ | 0 | ||
| U.S. Treasury Obligations* | 0.00% | |||
| * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
24 Invesco Van Kampen Enterprise 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 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) | 208 | None | ||||||||||
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. 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. | 208 | None | ||||||||||
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 | 226 | Director of the Abraham Lincoln Presidential Library Foundation | ||||||||||
Independent Trustees | ||||||||||||||
| Bruce L. Crockett — 1944 Trustee and Chair | 2003 | Chairman, Crockett Technology Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | 208 | ACE Limited (insurance company); and Investment Company Institute | ||||||||||
| David C. Arch — 1945 Trustee | 2010 | Chairman and Chief Executive Officer of Blistex Inc., a consumer health care products manufacturer. | 226 | 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 | 1983 | Retired Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation | 208 | None | ||||||||||
| Frank S. Bayley — 1939 Trustee | 2003 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie | 208 | None | ||||||||||
| James T. Bunch — 1942 Trustee | 2000 | 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 | 208 | 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, Vice Chairman of Anixter International. 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. | 226 | Director of Quidel Corporation and Stericycle, Inc. Prior to May 2008, Trustee of The Scripps Research Institute. Prior to February 2008, Director of Ventana Medical Systems, Inc. Prior to April 2007, Director of GATX Corporation. Prior to April 2004, Director of TheraSense, Inc. | ||||||||||
| Albert R. Dowden — 1941 Trustee | 2003 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 208 | Board of Nature’s Sunshine Products, Inc. | ||||||||||
| Jack M. Fields — 1952 Trustee | 2003 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives | 208 | Administaff | ||||||||||
| Carl Frischling — 1937 Trustee | 2003 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | 208 | Director, Reich & Tang Funds (16 portfolios) | ||||||||||
| Prema Mathai-Davis — 1950 Trustee | 2003 | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | 208 | None | ||||||||||
| Lewis F. Pennock — 1942 Trustee | 2003 | Partner, law firm of Pennock & Cooper | 208 | None | ||||||||||
| Larry Soll — 1942 Trustee | 1997 | Retired Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 208 | None | ||||||||||
| 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. | 226 | 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 | 208 | 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 | ||||||||
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 Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||||||
| Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc.(formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc.; and Vice President, The Invesco Funds Formerly: Senior Vice President, Invesco Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and The Invesco Funds; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Distributors, Inc.; Vice President, Invesco Investment Services, Inc. and Fund Management Company | N/A | N/A | ||||||||
| Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 2003 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; and Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
| Karen Dunn Kelley — 1960 Vice President | 2003 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser) and Van Kampen Investments Inc.; Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); and Director, Invesco Mortgage Capital Inc.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only). Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | N/A | ||||||||
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 | ||||||||||||
| Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange- Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, Van Kampen Asset Management, Van Kampen Investor Services Inc., and Van Kampen Funds Inc. Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | N/A | ||||||||
| Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.), Van Kampen Investments Inc. and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, INVESCO Private Capital Investments, Inc. (holding company), and Invesco Private Capital, Inc. (registered investment adviser); Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and Van Kampen Investor Services Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc. and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A | ||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
| 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Invesco Distributors, Inc. 11 Greenway Plaza, Suite 2500 Houston, TX 77046-1173 | PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 | |||
Counsel to the Fund | Counsel to the Independent Trustees | Transfer Agent | Custodian | |||
| Stradley Ronon Stevens & Young, LLP | Kramer, Levin, Naftalis & Frankel LLP | Invesco Investment Services, Inc. | State Street Bank and Trust Company | |||
| 2600 One Commerce Square | 1177 Avenue of the Americas | P.O. Box 4739 | 225 Franklin | |||
| Philadelphia, PA 19103 | New York, NY 10036-2714 | Houston, TX 77210-4739 | Boston, MA 02110-2801 |
T-4
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 available at invesco.com/proxysearch. In addition, this information is available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.| VK-ENT-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 Services Provided for fiscal | ||||||||
| Fees Billed for Services Rendered to the | year end 12/31/2010 Pursuant to Waiver | |||||||
| Registrant for fiscal year end 12/31/2010 | of Pre-Approval Requirement(1) | |||||||
| Audit Fees | $ | 86,300 | N/A | |||||
| Audit-Related Fees | $ | 0 | 0 | % | ||||
Tax Fees(2) | $ | 18,900 | 0 | % | ||||
| All Other Fees | $ | 0 | 0 | % | ||||
| Total Fees | $ | 105,200 | 0 | % | ||||
PWC billed the Registrant aggregate non-audit fees of $18,900 for the fiscal year ended December 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 December 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 Affiliates | ||||||||
| for fiscal year end 12/31/2010 That Were | ||||||||
| Required | Percentage of Fees Billed Applicable to | |||||||
| to be Pre-Approved | Non-Audit Services Provided for fiscal | |||||||
| by the Registrant’s | year end 12/31/2010 Pursuant to | |||||||
| Audit Committee | Waiver of Pre-Approval 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 December 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 December 14, 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 December 14, 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: March 11, 2011
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: March 11, 2011
| By: | /s/ Sheri Morris | |||
| Sheri Morris | ||||
| Principal Financial Officer | ||||
Date: March 11, 2011
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. |